quarterly report january-march 2014 - bbva€¦ · quarterly report january-march 2014 we work for...
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Quarterly report
January-March 2014We work for a better future for people
1Q14
1Q14
Contents 2 BBVA Group Highlights
3 Group information Relevant events ........................................................................................................................................................................................................................................................... 3
Earnings ................................................................................................................................................................................................................................................................................ 4
Balance sheet and business activity ................................................................................................................................................................................................ 10
Capital base .................................................................................................................................................................................................................................................................... 12
Risk management ................................................................................................................................................................................................................................................... 13
The BBVA share ......................................................................................................................................................................................................................................................... 16
Corporate responsibility ................................................................................................................................................................................................................................... 17
18 Business areas Banking activity in Spain ............................................................................................................................................................................................................................... 20
Real-estate activity in Spain ........................................................................................................................................................................................................................ 24
The United States .................................................................................................................................................................................................................................................. 26
Eurasia ................................................................................................................................................................................................................................................................................ 29
Mexico .................................................................................................................................................................................................................................................................................. 33
South America ........................................................................................................................................................................................................................................................... 36
Corporate Center .................................................................................................................................................................................................................................................... 40
Other information: Corporate & Investment Banking ................................................................................................................................................ 42
46 Annex
January-March 2014
Quarterly report
2 BBVA Group Highlights
BBVA Group HighlightsBBVA Group Highlights (Consolidated figures)
31-03-14 ∆% 31-03-13 31-12-13
Balance sheet (million euros)
Total assets 599,135 (5.4) 633,072 599,517
Loans and advances to customers (gross) 349,746 (6.1) 372,630 350,110
Deposits from customers 309,817 1.7 304,613 310,176
Other customer funds (1) 102,128 5.6 96,729 99,213
Total customer funds (1) 411,945 2.6 401,342 409,389
Total equity 44,056 (5.4) 46,572 44,850
Income statement (million euros)
Net interest income 3,391 (6.4) 3,623 14,613
Gross income 5,051 (6.8) 5,419 21,397
Operating income 2,438 (8.4) 2,661 10,196
Income before tax 1,017 22.3 831 2,750
Net attributable profit 624 (64.0) 1,734 2,228
Data per share and share performance ratios
Share price (euros) 8.72 28.9 6.76 8.95
Market capitalization (million euros) 50,442 36.9 36,851 51,773
Net attributable profit per share (euros) (2) 0.10 (65.5) 0.30 0.39
Book value per share (euros) 7.92 (4.5) 8.30 8.00
P/BV (Price/book value; times) 1.1 0.8 1.1
Significant ratios (%)
ROE (Net attributable profit/average equity) 5.5 16.2 5.0
ROTE (Net attributable profit/average tangible equity) 6.3 20.1 6.0
ROA (Net income/average total asets) 0.51 1.25 0.48
RORWA (Net income/average risk-weighted assets) 0.91 2.42 0.91
Efficiency ratio 51.7 50.9 52.3
Risk premium 1.27 1.51 1.59
NPA ratio 6.6 5.3 6.8
NPA coverage ratio 60 71 60
Capital adequacy ratios (%) (3)
Core capital 10.8 11.2 11.6
Tier I 11.5 11.2 12.2
BIS II Ratio 13.0 13.5 14.9
Other information
Number of shares (millions) 5,786 6.2 5,449 5,786
Number of shareholders 968,213 (2.2) 990,113 974,395
Number of employees (4) 109,079 (4.5) 114,245 109,305
Number of branches (4) 7,441 (4.5) 7,795 7,420
Number of ATMs (4) 20,864 3.2 20,219 20,415
Memorandum item: this quarterly information has not been audited. The consolidated accounts of the BBVA Group have been drawn up according to the International Financial Reporting Standards (IFRS) adopted by the European Union and in accordance with Bank of Spain Circular 4/2004 and with its subsequent amendments. As regards the stake in the Garanti Group, the information is presented as in previous periods and consolidated in proportion to the percentage of the Group’s stake. See pages 47 and 48 for the reconciliation of the BBVA Group’s financial statements.(1) They do not include the assets under management by pension fund administrators in Chile, Mexico, Colombia and Peru.(2) Basic earnings per share which includes the eventual dilution of the contingent convertible securities into shares, issued in the second quarter of 2013 and in the first quarter of 2014.(3) The capital ratios as of 31-Mar-2014 have been calculated under the Basel III phased-in regulations. For previous periods, the calculation was done in accordance with the Basel II regulations
in force at the time.
(4) Excluding Garanti.
Information about the net attributable profit (excluding results from corporate operations) (1) 31-03-14 ∆% 31-03-13 31-12-13
Net attributable profit 624 48.6 420 1,405
Net attributable profit per share (euros) (2) 0.10 38.8 0.08 0.25
ROE 5.5 3.9 3.1
ROTE 6.3 4.9 3.8
ROA 0.51 0.40 0.35
RORWA 0.91 0.78 0.66
(1) In 2013 it includes the results from the pension business in Latin America, including the capital gains from their sale; the capital gains from the sale of BBVA Panama; the capital gains generated by the reinsurance operation on the individual life and accident insurance portfolio in Spain; the equity-accounted earnings from CNCB (excluding dividends), together with the effect of the mark-to-market valuation of BBVA’s stake in CNCB following the new agreement concluded with the CITIC Group, which included the sale of 5.1% of CNCB.
(2) Basic earnings per share which includes the eventual dilution of the contingent convertible securities into shares, issued in the second quarter of 2013 and in the first quarter of 2014.
3Relevant events
In the first quarter of 2014, the BBVA Group’s earnings have
been negatively affected by the year-on-year changes in
exchange rates against the euro of the currencies with an
impact on the Bank’s financial statements. This quarter the
impact was lower than in the last twelve months, except for
the Venezuelan bolivar and the Argentinean peso. In the case
of the bolivar, this was due to the application of the currency
purchase-sale system called SICAD I, which has reduced the
final exchange rate of the Venezuelan currency against the
euro by 41.2% over the quarter (the system called Cadivi was in
force until December 2013). In the case of the Argentinean peso,
it was due to its depreciation (down 18.6% since 31-Dec-2013).
Other highlights of the quarter are summed up below:
1. From the point of view of earnings, revenue continued to
perform well and increased above the rate of expenses.
This combined with lower loan-loss provisions led to strong
growth in net income from ongoing operations of 18.7%
year-on-year (76.1% without the exchange-rate effect).
2. In activity South America, Mexico and the United States
loan book showed once more a strong performance. In
Eurasia, the volume of credit with wholesale clients was
stable, and Garanti’s loan portfolio growth slowed down.
In Spain the deleveraging process continued, although at
a more moderate pace than in previous quarters, as the
flow of new loan transactions has begun to grow in some
segments. The trend in customer funds remains favorable in
all geographical areas.
3. In terms of solvency, the new CRD IV regulation that took
effect in 2014 has had a limited impact on the Group’s
solvency ratios, which are at levels far above the minimum
required and compare very positively with its peer group.
BBVA continues managing actively its capital. In line with
this, is worth noting the two issues that have strengthened
the capital base and contributed to optimize its structure
under CRD IV (more detailed information in the Capital
Base and Corporate Center sections). It is also worth noting
that BBVA Compass has passed the stress tests carried out
in the United States and thus its capital plans have been
accepted with no objections by the Federal Reserve (Fed).
4. The quality of the loan portfolio behaved well between
January and March 2014, with a reduction in the NPA ratio
due to a decline in the non-performing loans, basically in
Spain. The Group’s coverage ratio remains stable. Lastly,
there was an improvement of 32 basis points in the risk
premium over the quarter.
5. Other relevant highlights in the quarter include:
• The Annual General Meeting was held on March 14, 2014
with attendance at 63.2%, much in line with previous
years. The average backing in voting for the items on
the agenda was over 98%, with massive support from
both institutional and individual shareholders. BBVA´s
management has thus once again received very strong
support during the difficult year of 2013.
• With respect to shareholder remuneration, a capital
increase against reserves approved by the AGM
was executed in April to implement the system of
shareholder remuneration called the “dividend option”.
This offers BBVA shareholders the chance to choose
between receiving the amount equivalent to the
traditional final dividend in either new BBVA shares or in
cash, for a guaranteed amount of €0.168 gross per share.
The holders of 89.2% of the free allocation rights opted
to receive new shares, which once more confirms the
success of this remuneration system.
• Acquisition of Simple, the U.S. company that has created
a new model for digital banking. This operation is part of
BBVA’s strategy to lead the technological transformation
of the financial industry. The deal values Simple at US$
117 million.
• Boost to BBVA’s transformation process with the creation
of the Digital Banking business area, headed by Carlos
Torres. It has been created with the double mission of
speeding up the Group’s transformation and boosting
the development of new digital businesses. In addition,
BBVA has appointed Jaime Sáenz de Tejada CFO and
head of Strategy. A new division has also been set up that
includes the global lines of the retail business and the
South America franchises, headed by Ignacio Deschamps.
Cristina de Parias joins the Management Committee
as head for Spain and Portugal. These organizational
changes do not affect the Group’s reporting structure,
which is basically the same as in 2013.
• Moody’s has upgraded BBVA’s rating by one notch to
Baa2 and has changed its outlook to positive from stable.
Group information
Relevant events
4 Group information
The BBVA Group’s earnings in the first quarter of 2014 were
characterized by the following:
1. Significant negative impact over the year of the changes in
exchange rates against the euro of the main currencies that
influence the Group’s financial statements. The effect was
more moderate over the quarter and has mainly affected the
Argentinean peso, which has suffered a significant depreciation,
and the Venezuelan bolivar, due to the application in the
consolidated financial statements of the currency purchase-sale
system called SICAD I (in place of the Cadivi system).
2. The good performance of recurring revenue (net interest
income plus fee income), which have increased year-on-year
by 6.7%, excluding the exchange-rate effect.
3. Significant contribution from net trading income (NTI), as
a result of good management of the structural risks on the
balance sheet and a favorable performance by the Global
Markets unit.
4. Good management of operating expenses, adapted to the
needs of each franchise.
5. A decline in impairment losses on financial assets, which are
at levels clearly below those of the quarterly average in the
previous year.
6. Lack of corporate operations.
Earnings
Consolidated income statement: quarterly evolution (1)
(Million euros)
2014 2013
1Q 4Q 3Q 2Q 1Q
Net interest income 3,391 3,760 3,551 3,679 3,623
Net fees and commissions 985 1,139 1,114 1,126 1,052
Net trading income 751 609 569 630 719
Dividend income 29 114 56 176 19
Income by the equity method (14) 53 9 11 (1)
Other operating income and expenses (90) (353) (113) (153) 7
Gross income 5,051 5,321 5,186 5,470 5,419
Operating expenses (2,613) (2,852) (2,777) (2,814) (2,758)
Personnel expenses (1,375) (1,423) (1,452) (1,454) (1,458)
General and administrative expenses (959) (1,134) (1,042) (1,080) (1,025)
Depreciation and amortization (279) (295) (283) (279) (276)
Operating income 2,438 2,469 2,410 2,656 2,661
Impairment on financial assets (net) (1,103) (1,210) (1,854) (1,336) (1,376)
Provisions (net) (144) (196) (137) (130) (167)
Other gains (losses) (173) (382) (198) (172) (287)
Income before tax 1,017 682 221 1,017 831
Income tax (273) (114) (13) (261) (205)
Net income from ongoing operations 744 568 208 756 626
Results from corporate operations – (1,245) 160 593 1,315
Net income 744 (677) 368 1,349 1,941
Non-controlling interests (120) (172) (172) (202) (206)
Net attributable profit 624 (849) 195 1,147 1,734
Net attributable profit (excluding results from corporate operations) (2) 624 396 35 554 420
Basic earnings per share (euros) 0.11 (0.15) 0.03 0.20 0.30
Basic earnings per share diluted (euros) (3) 0.10 (0.14) 0.03 0.20 0.30
Basic earnings per share diluted (excluding results from corporate operations) (euros) (2-3) 0.10 0.07 0.01 0.09 0.08
(1) Pro forma financial statements with the revenues and expenses of the Garanti Group consolidated in proportion to the percentage of the Group’s stake.(2) In 2013 it includes the results from the pension business in Latin America, including the capital gains from their sale; the capital gains from the sale of BBVA Panama; the capital gains
generated by the reinsurance operation on the individual life and accident insurance portfolio in Spain; the equity-accounted earnings from CNCB (excluding dividends), together with the effect of the mark-to-market valuation of BBVA’s stake in CNCB following the new agreement concluded with the CITIC Group, which included the sale of 5.1% of CNCB.
(3) Basic earnings per share which includes the eventual dilution of the contingent convertible securities into shares, issued in the second quarter of 2013 and in the first quarter of 2014.
5Earnings
Gross income
Excluding the impact mentioned above of the changes in exchange
rates, the trend in the Group’s gross income in the first quarter of
2014 has been very positive and marked by:
• The strength of net interest income, which grew by 7.8%
over the last year at constant exchange rates. This trend is
particularly positive taking into account the environment in
which it has been produced: low activity in Spain and in the
wholesale business in Europe; low interest rates, above all in the
developed geographical areas; the lack of the “floor clauses” in
the mortgage loans of Spanish consumers (they were eliminated
on May 9, 2013); and the more expensive cost of deposits in
Turkey since the second half of 2013. Despite these factors, the
Group has improved its net interest income thanks to an active
maintenance of spreads, increased activity in emerging markets
and the United States, and appropriate structural interest-rate
risk management.
Consolidated income statement (1) (Million euros)
1Q14 ∆%∆% at constant exchange rates 1Q13
Net interest income 3,391 (6.4) 7.8 3,623
Net fees and commissions 985 (6.4) 3.3 1,052
Net trading income 751 4.4 17.8 719
Dividend income 29 48.7 57.3 19
Income by the equity method (14) n.m. n.m. (1)
Other operating income and expenses (90) n.m. n.m. 7
Gross income 5,051 (6.8) 5.0 5,419
Operating expenses (2,613) (5.3) 4.0 (2,758)
Personnel expenses (1,375) (5.7) 2.7 (1,458)
General and administrative expenses (959) (6.4) 4.6 (1,025)
Depreciation and amortization (279) 1.1 9.1 (276)
Operating income 2,438 (8.4) 6.0 2,661
Impairment on financial assets (net) (1,103) (19.8) (15.3) (1,376)
Provisions (net) (144) (13.5) (2.3) (167)
Other gains (losses) (173) (39.7) (38.9) (287)
Income before tax 1,017 22.3 79.4 831
Income tax (273) 33.4 89.3 (205)
Net income from ongoing operations 744 18.7 76.1 626
Results from corporate operations - - - 1,315
Net income 744 (61.7) (57.0) 1,941
Non-controlling interests (120) (42.2) (20.2) (206)
Net attributable profit 624 (64.0) (60.5) 1,734
Net attributable profit (excluding results from corporate operations) (2) 624 48.6 129.0 420
Basic earnings per share (euros) 0.11 0.30
Basic earnings per share diluted (euros) (3) 0.10 0.30
Basic earnings per share diluted (excluding results from corporate operations) (euros) (2-3) 0.10 0.08
(1) Pro forma financial statements with the revenues and expenses of the Garanti Group consolidated in proportion to the percentage of the Group’s stake.(2) In 2013 it includes the results from the pension business in Latin America, including the capital gains from their sale; the capital gains from the sale of BBVA Panama; the capital gains
generated by the reinsurance operation on the individual life and accident insurance portfolio in Spain; the equity-accounted earnings from CNCB (excluding dividends), together with the effect of the mark-to-market valuation of BBVA’s stake in CNCB following the new agreement concluded with the CITIC Group, which included the sale of 5.1% of CNCB.
(3) Basic earnings per share which includes the eventual dilution of the contingent convertible securities into shares, issued in the second quarter of 2013 and in the first quarter of 2014.
505150515051505153215186
54705419
0
1,000
2,000
3,000
4,000
5,000
6,000
Gross income(Million euros)
(1) At constant exchange rates: +5.0%.
1Q 2Q 3Q 4Q
–6.8% (1)
2013
5,0515,419 5,470
5,186 5,321
1Q2014
6 Group information
• The other operating income and expenses heading
includes the adjustment for hyperinflation in Venezuela,
which in the first quarter of 2014 was slightly more negative
than in the same period of 2013. It should also be noted
that in the fourth quarter of 2013 this heading included the
extraordinary payment to the Spanish Deposit Guarantee
Fund (FGD), in compliance with Royal Decree-Law 6/2013.
Operating income
Growth in operating expenses has been restricted in
year-on-year terms, with a rise under that of gross income
(up 4.0% at constant exchange rates). This trend is the result
of adapting management to the needs of each geographical
area: a policy of cost rationalization in developed countries and
execution of transformation and expansion plans in emerging
regions, mainly Mexico and South America. Investment in these
countries is focused on three core areas:
• A good level of income from fees and commissions (up
3.3% year-on-year) due to the growth of those from asset
management and wholesale banking operations (developed
markets), a positive performance in Garanti and strong
activity in the rest of the emerging geographical areas.
• Excellent performance of NTI, due to another positive
quarter in the Global Markets unit and appropriate
management of structural risks on the balance sheet.
There is nothing significant in the rest of the items forming part
of gross income:
• Dividends basically include those coming from Global
Markets.
• Income by the equity method is mainly from the Group’s
stake in the Chinese company Citic International Financial
Holdings (CIFH).
Breakdown of operating expenses and efficiency calculation(Million euros)
1Q14 ∆% 1Q13 2013
Personnel expenses 1,375 (5.7) 1,458 5,788
Wages and salaries 1,039 (5.5) 1,100 4,392
Employee welfare expenses 221 (5.4) 234 866
Training expenses and other 114 (7.9) 124 530
General and administrative expenses 959 (6.4) 1,025 4,280
Premises 228 (1.7) 232 966
IT 188 0.8 187 801
Communications 68 (16.1) 81 313
Advertising and publicity 84 (15.9) 100 391
Corporate expenses 20 (11.1) 23 106
Other expenses 274 (6.4) 293 1,268
Levies and taxes 96 (11.8) 109 437
Administration expenses 2,334 (6.0) 2,482 10,068
Depreciation and amortization 279 1.1 276 1,133
Operating expenses 2,613 (5.3) 2,758 11,201
Gross income 5,051 (6.8) 5,419 21,397
Efficiency ratio (Operating expenses/gross income, in %) 51.7 50.9 52.3
Net interest income/ATA(Percentage)
1Q 2Q 1Q2013 2014
2,302,36
2,31
2,47
2,33
1
2
3
2.362.30
3Q
2.47
4Q
2.31 2.33
1Q 2Q 3Q 4Q
–6.4% (1)
2013
4,3764,675 4,805 4,665
4,899
1Q2014
4376437643764376
4899466548054675
0500
1.0001.500
2.0002.5003.0003.5004.0004.5005.000
Net interest income plus fees and commissions(Million euros)
(1) At constant exchange rates: +6.7%.
7Earnings
• Implementation of a segmented and specialized
management with the aim of improving customer insight.
• Extension and modernization of the distribution network and
a boost to digital channels.
• An ongoing transformation process to make procedures
more speedy, secure and reliable through digitization and
automation.
When comparing the number of employees, branches and
ATMs in year-on-year terms, it is important to take into account
the sale of BBVA Panama and the pension business in Latin
America in 2013, as well as the investment resulting from the
transformation and expansion plans, implemented above all in
Latin America (with increases above all in ATMs).
As a result of this performance of revenue and expenses, the
Group’s operating income grows 6.0% in the last 12 months at
constant exchange rates, after a number of quarters in which
the year-on-year rates were negative. The efficiency ratio has
improved with respect to the close of 2013 (51.7% compared with
52.3%, respectively).
1Q 2Q 3Q 4Q
–5.3% (1)
2013
2,6132,758 2,814 2,777 2,852
1Q2014
26132613261326132852277728142758
0
500
1.000
1.500
2.000
2.500
3.000
Operating expenses(Million euros)
(1) At constant exchange rates: +4.0%.
Efficiency
50,952,3 51,7
40
50
60
Grossincome
Operatingexpenses
5051
-2613
21397
-11201
5419
-2758
-15.000
-10.000
-5.000
0
5.000
10.000
15.000
20.000
25.000
(Million euros)
5,419
21,397
5,051
2,758
11,201
2,613
1Q13 1Q142013
(Percentage)
Efficiency ratio
50.952.3 51.7
1Q13 1Q142013
114,245
March2013
31,673
37,743
31,544
11,291
109,305
December2013
30,376
37,519
28,482
11,055
109,079
March2014
30,385
36,785
28,961
11,077ESPA AEEUUMEXICOAM SURRESTO DEL MUNDO31673,0
30376,0 30385,0
11291,0 11055,0 11077,037743,0 37519,0 36785,0
31544,0 28482,0 28961,0
1994,0 1873,0 1871,00
20000
40000
60000
80000
100000
120000
Number of employees (1)
(1) Excluding Garanti.
Spain
Mexico
Rest of the world
The United States
South America
7,795
March2013
3,518
1,792
1,656
707
7,420
December2013
3,230
1,794
1,590
685
7,441
March2014
3,231
1,795
1,610
684
Espa aEstados UnidosM xicoAm rica del SurResto del mundo
3.518,03.230,0 3.231,0
707,0 685,0 684,0
1.792,0 1.794,0 1.795,0
1.656,0 1.590,0 1.610,0
122,0 121,0 121,00
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000
Number of branches (1)
(1) Excluding Garanti.
Spain
South America
Rest of the world
The United States
Mexico
20,864
March2014
5,924
7,999
5,908
1,033
20,219
March2013
5,993
7,674
5,500
1,052
20,415
December2013
5,863
7,749
5,775
1,028 Espa aEstados UnidosM xicoAm rica del SurResto del mundo
5.993,0 5.863,0 5.924,0
1.052,0 1.028,0 1.033,0
7.674,0 7.749,0 7.999,0
5.500,0 5.775,0 5.908,0
0
5.000
10.000
15.000
20.000
25.000
Number of ATMs (1)
(1) Excluding Garanti.
Spain
Mexico
South America
The United States
2661 26562410 2469 2438 2438 2438 2438
0
500
1.000
1.500
2.000
2.500
3.000
Operating income(Million euros)
1Q 2Q 3Q 4Q
–8.4% (1)
2013
2,4382,661 2,656
2,410 2,469
1Q2014
(1) At constant exchange rates: +6.0%.
8 Group information
Provisions and others
Cumulative impairment losses on financial
assets through March 2014 have fallen
significantly with respect to the average
quarterly level in 2013. Among the reasons
behind the decline are the reduction in
non-performing balances due to a lower
level of additions to NPA and an increase in
the volume of recoveries, basically in Spain.
As a result, the Group’s risk premium in the
quarter was 1.27%, 32 basis points below the
cumulative figure for 2013.
Provisions include early retirement costs,
provisions for contingent liabilities, and
contributions to pension funds. This heading
posted a net figure of €144m for the quarter,
similar to the same period last year (down
2.3% at constant exchange rates).
Other gains (losses), which basically includes
provisions for real estate and foreclosed or
acquired assets in Spain, also improved due
to lower requirements of provisions for real
estate and the inclusion of a capital gain from
the sale of 7% of the stake in Tubos Reunidos.
As a result of the above, net income from
ongoing operations increased significantly
in the last 12 months, with a rise of 76.1% at
constant exchange rates and 18.7% at current
rates.
Finally, no transaction has been recorded
this quarter under the heading of results
from corporate operations. It should be
noted that in the same period of 2013 this
heading included the following items: the
reinsurance operation of the individual life-risk
portfolio in Spain; the earnings of the Group’s
pension business in Latin America, including
the capital gains from the sale of the Afore
pension manager in Mexico; and finally, the
equity-accounted income excluding dividends
of China Citic Bank (CNCB).
Net attributable profit
As a result, BBVA has concluded the first
quarter of the year with a net attributable
profit of €624m, 60.5% down on the same
1376 1336
1854
12101103 1103 1103 1103
0
200
400
600
800
1.000
1.200
1.400
1.600
1.800
2.000
Impairment losses on financial assets(Million euros)
1Q 2Q 3Q 4Q
–19.8% (1)
2013
1,103
1,376 1,336
1,854
1,210
1Q2014
(1) At constant exchange rates: —15.3%.
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9Earnings
period in 2013 (at constant exchange rates),
due to corporate operations accounted for in
the first three months of 2013. Excluding this
effect, the Group’s profit more than doubles
that for the same period in 2013 (up 129% at
constant exchange rates).
By business area, Banking activity in Spain
has contributed €386m, real-estate activity in
Spain generated a loss of €231m, the United
States and Eurasia contributed €105m each,
Mexico €453m and South America €244m.
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10 Group information
The trends in BBVA Group’s balance sheet
and business activity at the close of the first
quarter of 2014 were as follows:
• A significant negative year-on-year impact
in the quarter from exchange rates. The
effect is also negative against the close
of 2013, mainly due to the depreciation of
the Argentinean peso and the application
of SICAD I (rather than Cadivi) to the
exchange rate of the Venezuelan bolivar.
• Stability. The Group’s balance sheet closed
as of 31-Mar-2014 with €599 billion in total
assets, a figure that is practically the same
as of 31-Mar-2013 (up 0.6%), excluding the
effect of the different currencies.
• Loans and advances to customers (gross)
is stable over 12 months (down 0.5% at
constant exchange rates) and up 1.6% over
the quarter, also at constant exchange
rates. Once more, South America, Mexico
and the United States performed well. In
Eurasia there was stability in the volume
of credit with wholesale clients, as well as
some slowdown in the growth of Garanti’s
loan portfolio. In Spain the deleveraging
Balance sheet and business activity
Consolidated balance sheet (1)
(Million euros)
31-03-14 ∆% 31-03-13 31-12-13
Cash and balances with central banks 27,546 (8.8) 30,208 37,064
Financial assets held for trading 76,433 0.9 75,750 72,301
Other financial assets designated at fair value 3,385 9.9 3,079 2,734
Available-for-sale financial assets 88,236 19.0 74,135 80,848
Loans and receivables 360,938 (6.9) 387,551 363,575
Loans and advances to credit institutions 21,441 (18.7) 26,383 24,203
Loans and advances to customers 334,698 (6.4) 357,490 334,744
Debt securities 4,799 30.4 3,678 4,628
Held-to-maturity investments - n.m. 9,734 -
Investments in entities accounted for using the equity method 1,319 (81.1) 6,991 1,497
Tangible assets 7,474 (4.6) 7,831 7,723
Intangible assets 8,139 (9.1) 8,952 8,165
Other assets 25,666 (11.0) 28,842 25,611
Total assets 599,135 (5.4) 633,072 599,517
Financial liabilities held for trading 48,976 (10.8) 54,894 45,782
Other financial liabilities at fair value 3,040 1.3 3,001 2,772
Financial liabilities at amortized cost 476,656 (4.5) 499,077 480,307
Deposits from central banks and credit institutions 84,461 (7.5) 91,277 87,746
Deposits from customers 309,817 1.7 304,613 310,176
Debt certificates 62,892 (25.0) 83,813 65,497
Subordinated liabilities 12,123 0.9 12,009 10,579
Other financial liabilities 7,363 (0.0) 7,364 6,309
Liabilities under insurance contracts 10,102 (2.1) 10,314 9,844
Other liabilities 16,306 (15.1) 19,215 15,962
Total liabilities 555,079 (5.4) 586,500 554,667
Non-controlling interests 1,863 (21.1) 2,362 2,371
Valuation adjustments (3,636) 261.5 (1,006) (3,831)
Shareholders’ funds 45,830 1.4 45,216 46,310
Total equity 44,056 (5.4) 46,572 44,850
Total equity and liabilities 599,135 (5.4) 633,072 599,517
Memorandum item:
Contingent liabilities 34,878 (8.7) 38,195 36,437
(1) Pro forma financial statements with the assets and liabilities of the Garanti Group consolidated in proportion to the percentage of the Group’s stake.
11Balance sheet and business activity
process continued, although at a more
moderate pace than in previous quarters,
as the flow of new credit transactions has
begun to grow in some segments.
• Favorable trend in non-performing loans
in the quarter, due to a decline in the
number of non-performing loans between
January and March of 2014, basically in
Spain. The year-on-year rise is largely due
to the classification of refinanced loans in
Spain in the third quarter of 2013.
• Deposits from customers have performed
well in all geographical areas, above all
lower-cost deposits with year-on-year
growth of 10.4% (up 3.1% in the quarter) at
constant exchange rates.
• Off-balance-sheet funds continued
strong, both over the last 12 months and
over the quarter. There was outstanding
growth in mutual funds in Spain, due to
the commercial campaigns launched
by the area and increased demand by
customers for investment products that are
alternatives to term deposits, in a context
of falling returns.
Loans and advances to customers(Million euros)
31-03-14 ∆% 31-03-13 31-12-13
Domestic sector 168,461 (12.5) 192,543 167,670
Public sector 23,962 (7.1) 25,799 22,128
Other domestic sectors 144,499 (13.3) 166,744 145,542
Secured loans 91,858 (11.1) 103,373 93,446
Other loans 52,641 (16.9) 63,371 52,095
Non-domestic sector 156,233 (1.5) 158,640 156,615
Secured loans 63,391 (2.2) 64,809 62,401
Other loans 92,842 (1.1) 93,831 94,214
Non-performing loans 25,033 16.7 21,448 25,826
Domestic sector 20,356 25.8 16,184 20,985
Non-domestic sector 4,677 (11.1) 5,263 4,841
Loans and advances to customers (gross) 349,726 (6.1) 372,630 350,110
Loan-loss provisions (15,028) (0.7) (15,140) (15,366)
Loans and advances to customers 334,698 (6.4) 357,490 334,744
Loans and advances to customers(gross)(Billion euros)
373
March2013
358
March2012
March2014
(1) At constant exchange rates: —0.5%.
–6.1% (1) 350373
358
0
50
100
150
200
250
300
350
400
350
401
March2013
365
March2012
412
March2014
+2.6% (1)
87
97102
278
305 310
050100150200250300350400450
9787
102
305278310
Customer funds(Billion euros)
(1) At constant exchange rates: +10.4%.
Othercustomer
funds
Depositsfrom
customers
Customer funds (Million euros)
31-03-14 ∆% 31-03-13 31-12-13
Deposits from customers 309,817 1.7 304,613 310,176
Domestic sector 150,415 2.8 146,359 151,070
Public sector 18,160 (16.1) 21,646 14,435
Other domestic sectors 132,255 6.0 124,713 136,635
Current and savings accounts 53,150 10.1 48,290 53,558
Time deposits 68,676 2.8 66,789 69,977
Assets sold under repurchase agreement and other 10,428 8.2 9,634 13,100
Non-domestic sector 159,402 0.7 158,254 159,106
Current and savings accounts 98,402 1.0 97,419 101,515
Time deposits 51,473 (3.8) 53,514 49,266
Assets sold under repurchase agreement and other 9,527 30.1 7,321 8,325
Other customer funds 102,128 5.6 96,729 99,213
Spain 62,263 17.3 53,095 59,490
Mutual funds 23,783 23.5 19,259 22,298
Pension funds 20,994 10.4 19,019 20,428
Customer portfolios 17,486 18.0 14,817 16,763
Rest of the world 39,865 (8.6) 43,634 39,723
Mutual funds and investment companies 21,759 (8.7) 23,837 21,180
Pension funds (1) 4,331 15.2 3,761 4,234
Customer portfolios 13,775 (14.1) 16,036 14,309
Total customer funds 411,945 2.6 401,342 409,389
(1) They do not include the assets under management by pension fund administrators in Chile, Mexico, Colombia and Peru.
12 Group information
The new European legislation CRD IV entered into force
on January 1, 2014 as a result of the Basel III accords. This
involves including new criteria to calculate the capital base.
One effect is increased capital requirements requiring higher
quality. Another is modifications in the form of measuring the
risks associated with certain assets. A new ratio has also been
introduced to try to limit excessive leveraging by financial
institutions. This ratio will in the future be accompanied by two
further ratios related to liquidity levels: the liquidity coverage
ratio (LCR) starting in 2015, and the net stable funding ratio
(NSFR), starting in 2019, which will be used as a basis for
maintaining adequate liquidity levels in the short and long
term. The implementation of the new legislation will be
phased-in so that it is fully loaded at the start of 2019.
BBVA has carried out active capital management, as
demonstrated by the following figures:
• Comfortable compliance with the capital requirements.
The Group ends the quarter with a phased-in core capital
ratio of 10.8% and fully-loaded of 9.9%, which are at levels
far above the minimum required (4.0% phased-in and 7.0%
fully-loaded) and compares very positively with those of its
peer group.
• Two successful debt issues that strengthen and optimize
the Group’s capital base under CRD IV:
1. An issue of contingent convertible securities, eligible as
additional Tier I, for €1.5 billion.
2. A subordinated bond issue, eligible as Tier II, also for €1.5
billion.
• It is also worth noting that BBVA Compass has passed
the stress tests carried out in the United States and thus
its capital plans have been approved by the Fed with no
objections.
• In April a capital increase was executed against reserves
to implement the system of shareholder remuneration
called the “dividend option”. Owners of 89.2% of the free
allotment rights opted to receive new shares.
In short, the BBVA Group continues to manage its solvency
ratios and strong capital position appropriately. It is therefore
prepared for the asset quality review (AQR) process that is
being carried out by the European Central Bank (ECB) and the
European Banking Authority (EBA).
RatingsOn February 11, 2014, Moody’s upgraded its long-term rating
outlook of BBVA from negative to stable. Shortly after, on March
4, it announced a rating upgrade of one notch for BBVA to Baa2,
changing the outlook to positive, and upgraded the short-term
rating from Prime -3 to Prime -2. This upgrade by Moody’s, the
first in more than seven years, was a result of the strength of
BBVA’s fundamentals, as well as an improvement in the Kingdom
of Spain’s sovereign rating. In addition, in the first quarter of
2014 the rating agency Scope Ratings published BBVA’s rating
for the first time, giving it an A with a stable outlook. This is
the first agency whose methodology takes into account the
new European Resolution Regime, by which rating decisions
are based on the intrinsic value of the entities rather than on
potential sovereign support.
Capital base
Capital base(Million euros)
BIS III phased-in BIS II
31-03-14 31-12-13 30-09-13 30-06-13 31-03-13
Core capital 35,995 37,492 37,102 37,293 36,721
Capital (Tier I) 38,494 39,611 37,300 37,531 36,721
Other eligible capital (Tier II) 4,905 8,695 7,019 7,026 7,584
Capital base 43,399 48,306 44,319 44,557 44,305
Risk-weighted assets 333,906 323,605 325,665 331,098 328,002
BIS ratio (%) 13.0 14.9 13.6 13.5 13.5
Core capital (%) 10.8 11.6 11.4 11.3 11.2
Tier I (%) 11.5 12.2 11.5 11.3 11.2
Tier II (%) 1.5 2.7 2.2 2.1 2.3
Ratings
Long term Short term Outlook
Moody’s Baa2 P-2 Positive
Fitch BBB+ F-2 Stable
Standard & Poor’s BBB– A-3 Stable
DBRS A R-1 (low) Negative
Scope Ratings A - Stable
13Risk management
Credit risk
At the close of the first quarter of 2014, the changes in the
Group’s main asset quality indicators have been positive:
• A reduction in the NPA ratio in Spain (including real-estate
activity) to 10.0% from 10.3% in December 2013, as a result
of a decline in non-performing assets of €610m, with credit
risk remaining stable. The coverage ratio improved slightly
on the close of 2013.
• Asset quality indicators improve in the United States.
• Stability in Eurasia and Mexico.
• Good risk indicators in South America.
As of 31-Mar-2014, the Group’s credit risks with customers
(including contingent liabilities) fell back over the quarter by
0.5% as a result of the exchange-rate effect (particularly the
depreciation of the Argentinean peso and the application of
the SICAD I system to the Venezuelan bolivar). Excluding the
exchange-rate effect, total risks increased 1.1% in the last 3
months (3.3% in Mexico, 4.6% in the US, 3.4% in South America
and 2.4% in Turkey).
The balance of non-performing assets also fell over the
quarter thanks to the good performance of additions to NPA
Risk management
Non-performing assets evolution(Million euros)
1Q14 4Q13 3Q13 2Q13 1Q13
Beginning balance 26,243 26,508 22,226 21,808 20,603
Entries 2,190 3,255 7,094 4,075 3,603
Recoveries (1,708) (2,261) (1,956) (1,964) (1,659)
Net variation 482 993 5,138 2,112 1,944
Write-offs (1,248) (1,102) (817) (1,282) (655)
Exchange rate differences and other (32) (155) (39) (412) (84)
Period-end balance 25,445 26,243 26,508 22,226 21,808
Memorandum item:
Non-performing loans 25,032 25,826 26,109 21,810 21,448
Non-performing contingent liabilities 413 418 399 416 361
Credit risk management (1)
(Million euros)
31-03-14 31-12-13 30-09-13 30-06-13 31-03-13
Non-performing assets 25,445 26,243 26,508 22,226 21,808
Credit risks 384,577 386,401 393,556 401,794 410,840
Provisions 15,372 15,715 15,777 15,093 15,482
Specific 12,752 13,030 12,439 11,084 10,578
Generic and country-risk 2,620 2,684 3,338 4,009 4,904
NPA ratio (%) 6.6 6.8 6.7 5.5 5.3
NPA coverage ratio (%) 60 60 60 68 71
NPA ratio (%) (excluding real-estate activity in Spain) 4.6 4.6 4.6 3.8 3.6
NPA coverage ratio (%) (excluding real-estate activity in Spain) 59 59 58 64 68
(1) Including contingent liabilities.
Non-performing assets(Million euros)
21808 22226
26508 2624325444
0
5.000
10.000
15.000
20.000
25.000
30.000
MarchJune
22,226
September
26,508
March
21,808–3.0%
26,243
December
(1) Incluye los saldos procedentes de Unnim.
3.038 (1)
17.076
2013 2014
25,445
14 Group information
at the close of 2013, from 61% in 31-Dec-2013
to 63%, thanks to the increase recorded in
real-estate activity. In banking activity the ratio
(41%) remains at the same level as at the close
of the previous year.
Structural risks
The Assets and Liabilities Management unit
in BBVA’s Financial Area is responsible for
managing overall liquidity and structural
interest-rate and foreign-exchange positions.
Liquidity management helps to finance the
recurring growth of the banking business at
suitable maturities and costs, using a wide
range of instruments that provide access to a
large number of alternative sources of finance.
A core principle in the BBVA Group’s liquidity
management is the financial independence of
its subsidiaries abroad. This principle prevents
the propagation of a liquidity crisis among the
Group’s different areas and guarantees correct
transmission of the cost of liquidity to the
price formation process.
In the first quarter of 2014, the long-term
wholesale financial markets in Europe
continued to be notably stable, as a result of the
positive trend in sovereign risk premiums, while
growth expectations improved in the Eurozone.
BBVA has continued to access the market, and
issued €1 billion in 5-year senior debt.
Similarly, short-term finance in Europe has
also performed well, in a context marked by
a high level of market liquidity. In addition
to the above, BBVA’s retail franchise in Spain
performed outstandingly as a result of its
customer-centric strategy and the Bank’s
financial solidity.
The environment outside Europe has also
been very positive. BBVA has once again
strengthened its liquidity position in all the
jurisdictions in which the Group operates.
In the franchises where BBVA is present,
its capacity to gather retail deposits has
meant the absence of the need to access
the international financial markets and also a
further improvement in the Group’s financing
structure.
To sum up, BBVA’s proactive policy in its
liquidity management, the outstanding
performance in customer funds in all
geographical areas, its proven ability to access
the market, even in difficult environments, its
retail business model, the lower volume of
maturities compared with its peers and the
in Spain, above all in real-estate activity, and
the improvement in asset quality in the United
States and Mexico.
In terms of variation in NPA, gross additions
declined below the level of the first quarter
of 2013 and the quarterly average of 2013
(removing the effect of the classification in the
third quarter of refinanced loans as
non-performing). Recoveries were in line with
those of the first quarter of 2013. As a result,
the ratio of recoveries to gross additions to
NPA was 78.0% in the quarter, a significant
improvement on the figure of 69.5% in the
fourth quarter of 2013.
The Group’s NPA ratio ended March 2014 at
6.6% (4.6% excluding real-estate activity in
Spain), a reduction of 18 basis points over the
quarter. This is mainly the result of the fall
in the non-performing portfolio mentioned
above. The NPA ratio of the banking business
in Spain stands at 6.4%, a slight decrease of
2 basis points over the quarter. The ratio in
real-estate activity in Spain declined to 54.2%
(55.5% as of 31-Dec-2013). The ratio in Eurasia
remained stable, closing March at 3.4%. It
improved in the United States to 1.0% and
Mexico to 3.4%. Lastly, in South America the
NPA ratio was 2.2% (2.1% as of December
2013).
Finally, coverage provisions for risks with
customers totaled €15,372m as of 31-Mar-2014,
with a fall of 2.2% on the figure for December
2013, although the Group’s coverage ratio
remains stable at 60%. By business areas, the
ratio increased in the United States from 134%
to 160%, remained practically stable in Eurasia
at 88%, increased slightly to 114% in Mexico
(110% in December 2013), while in South
America it fell back from 141% to 136%. Finally,
in Spain it has improved slightly on the figure
66,068,0
64,0
58,0 59,0
20
30
40
50
60
70
80
90
100
3,5 3,6 3,84,6 4,5
3
8
13
18
23
March2014
6864
58
3.6 3.84.6
59
4.6
DecemberMarch June2013
September
59
4.6
NPA and coverage ratios (1)
(Percentage)
NPAratio
Coverageratio
(1) Excluding real-estate activity in Spain.
15Risk management
relatively small size of its balance sheet, all
give it a comparative advantage against its
peers. Moreover, the increased proportion of
retail deposits continues to strengthen the
Group’s liquidity position and to improve its
financing structure.
Foreign-exchange risk management of
BBVA’s long-term investments, basically
stemming from its franchises abroad, aims
to preserve the Group’s capital adequacy
ratios and ensure the stability of its income
statement.
The first quarter of 2014 has featured high
exchange-rate volatility due to the application
of the exchange rate from the SICAD I
system for the Venezuelan bolivar and the
depreciation of the Argentinean peso. In this
context, BBVA has maintained a policy of
actively hedging its investments in Mexico,
Chile, Colombia, Turkey and the dollar area. In
addition to this corporate-level hedging, dollar
positions are held at a local level by some of
the subsidiary banks. The foreign-exchange
risk of the earnings expected from abroad
for 2014 is also managed. The impact of
variations in exchange rates in the first quarter
of 2014 has been partly offset by the hedging
positions held, which have counteracted a
possibly more negative effect on the Group’s
income statement and capital ratios.
The unit also actively manages the structural
interest-rate exposure on the Group’s
balance sheet. This aims to maintain a steady
growth in net interest income in the short
and medium term, regardless of interest-rate
fluctuations.
In the first quarter of 2014, the results of this
management have been satisfactory, with
limited risk strategies in Europe, the United
States and Mexico. These strategies are
managed both with hedging derivatives (caps,
floors, swaps and FRAs) and with balance-sheet
instruments (mainly government bonds with
the highest credit and liquidity ratings).
Economic capital
Attributable economic risk capital (ERC) 1
consumption as of 31-Mar-2014 amounted to
€29,835m, a decline of 5.9% on the figure for
December 2013.
As is to be expected from BBVA’s profile,
the largest allocation to ERC (52.5%) relates
to credit risk on portfolios originated in
the Group’s branch network from its own
customer base. A 9.6% decline was reported
in the quarter, concentrated mainly in South
America and Spain.
Equity risk, in other words the portfolio
of holdings in industrial and financial
companies, the stake in the CNCB group
and consumption of economic capital from
goodwill, has maintained its proportion stable
in relation to total risks, at 17.9%.
Structural balance-sheet risk, originated from
the management of both structural interest-
rate risk and exchange-rate risk, accounts for
5.8% of ERC, and has declined 7.9% over the
last quarter.
Operational risk reduced its relative weight to
6.7%, while fixed-asset risk increased its share
to 12.8% of total ERC consumption.
Lastly, market risk, which is of less importance
given the nature of the business and BBVA’s
policy of minimal proprietary trading, reduced
its relative weight to 3.0%.
(1) The changes presented here are with respect to a calculation of the December 2013 close (€31,703m) that uses comparable figures, including the annual effects of the updates in methodology and credit risk carried out at the end of the year (Mexico, South America and United States) and the revision of the other risk models, rather than the official closing figure published for 2013 (€29,524m).
16 Group information
The world economy continued to show signs of recovery
in the first quarter of 2014. In the United States, after initial
months of weaker than expected economic data, the recovery
is gaining traction and the Fed has continued its steady
withdrawal of monetary stimuli begun at the end of 2013. In
Europe, the ECB is maintaining its base rate at all-time lows,
supporting the recovery of the euro zone, and it has opened
the door to the use of unconventional expansive measures
if necessary (prolonged period of low inflation). In emerging
markets, following the significant depreciation of some
currencies, the situation appears to have stabilized and the
differences between economies are becoming increasingly
clear.
The improved macroeconomic tone of Europe, particularly
in peripheral countries such as Spain, has been reflected in
the behavior of the financial markets. The general European
Stoxx 50 index registered a 1.7% quarterly gain at the close of
March, and the Ibex 35 was up 4.3%. The recovery has been
particularly noticeable in the financial sector. The Eurozone
banking index, Euro Stoxx Banks, gained 9.8% over the quarter.
BBVA’s earnings figures for the fourth quarter of 2013 have
been well received by equity analysts, particularly in terms
of the quality and soundness of its capital, above all the
Basel III fully-loaded ratio. Analysts have also highlighted the
good performance of consolidated net interest income and
asset quality in Spain, in particular the performance of gross
additions to NPA, falling loan-loss provisions and stability in
the coverage ratio. By business areas, there were surprisingly
good results in Spain, Mexico and South America.
The BBVA share closed the quarter at €8.72 per share, a
decline of 2.6% on the price as of December 31, putting market
capitalization as of 31-Mar-2014 at €50,442m.
The average daily volume traded between January and March
2014 increased on the last quarter of 2013, with a 3.1% rise
in the number of shares to 40 million and a 6.7% increase in
euros to €362m.
With respect to shareholder remuneration, and as approved
by the Annual General Meeting held on March 14, 2014, the
capital increase against reserves was executed in April to
implement the system of shareholder remuneration called
the “dividend option”. This offers BBVA shareholders the
chance to choose between receiving the amount equivalent
to the traditional final dividend in either new BBVA shares or
in cash. Each shareholder has a free allocation right for each
BBVA share held on March 28, 2014, with 51 rights entitling the
holder to one new BBVA share. Shareholders may sell the free
allocation rights to BBVA for a fixed guaranteed amount of
€0.168 gross per share, or on the market during their trading
period. The new shares were allocated on April 24, 2014 and
began ordinary trading on the following day, April 25. The
holders of 89.2% of the free allocation rights opted to receive
new shares, which once more confirms the success of this
remuneration system.
The BBVA share
The BBVA share and share performance ratios
31-03-14 31-12-13
Number of shareholders 968,213 974,395
Number of shares issued 5,785,954,443 5,785,954,443
Daily average number of shares traded 40,386,450 39,188,130
Daily average trading (million euros) 362 340
Maximum price (euros) 9.96 9.40
Minimum price (euros) 8.49 8.17
Closing price (euros) 8.72 8.95
Book value per share (euros) 7.92 8.00
Market capitalization (million euros) 50,442 51,773
Price/book value (times) 1.1 1.1
PER (Price/earnings; times) 15.0 23.2
Yield (Dividend/price; %) 4.2 4.1
5060708090
100110120130140150160
Share price index(31-03-13=100)
30-06-13 30-09-1331-03-13 31-12-13 31-03-14
Stoxx 50
BBVA
Euro StoxxBanks
5060708090
100110120
140
160150
130
17Corporate responsibility
BBVA believes in a different approach to banking based on principles-
adjusted return. This commitment to set BBVA apart, combined
with its brand vision “working for a better future for people”, has led
to the definition of a “Responsible Business Plan” with three strategic
priorities: transparent, clear and responsible (TCR) communication;
education; and products with a high social impact, developed through
social programs and support initiatives for different groups.
In the first quarter of 2014 BBVA was recognized as the best
company in the world in online communication of corporate
responsibility (CR) and sustainability through its social media
channels and profiles. This recognition by the consultancy firm
Sustainly, which promotes the Social Media Sustainability Index,
particularly highlights BBVA’s social media community and its
interest in creating projects, campaigns and services for meeting
the needs of society in general based on its profiles on the social
media. Two projects in particular stand out: the response to the
typhoon disaster in the Philippines through “BBVA Suma” and the
“Yo Soy Empleo” (I am Employment) program. Other highlights in
the quarter are summarized below:
TCR CommunicationBBVA’s Responsible Business Committee has approved a
methodology to implement the TCR Communication project
at global level, analyzing the resources needed and its scope
and implementation dates. Progress has been made with the
information contained in the product leaflets in Spain and Mexico,
which will be available for customers in 2014.
EducationA number of initiatives have been carried out in the area of
education. More information on these can be found in the chapter
on business areas and on the website www.bancaparatodos.com.
Products with a high social impactWith respect to products with a high social impact, the highlights
are: the “Beyond Banking 2013” award granted to BBVA Bancomer;
the “Efecto Móvil” (Mobile Effect) program in Peru and the
“Congelada BBVA” credit card in Colombia; the good evolution of
the initiative “Yo soy empleo (I am employment)” in Spain; and BBVA
has joined as founding partner the two European Commission
initiatives designed to boost innovation and leadership in the digital
economy in Europe (more detailed information is available in the
chapter on business areas and on www.bancaparatodos.com).
Other linesEco-efficiencyOn March 29, 2014, the BBVA Group took part in the global
“Earth Hour” campaign, switching off the lights of 554 buildings
(127 corporate buildings and 427 branches) in 211 cities in 10
countries from America to Europe. This initiative is promoted by
the World Wildlife Fund (WWF), one of the most important nature
conservation organizations in the world. It has become the biggest
global event for the defense of nature.
“Ciudad BBVA” (BBVA City) in Madrid has received the ISO 14001
environmental certification, which recognizes the commitment
to sustainability of the new corporate headquarters. They are
designed to achieve the lowest possible environmental impact, with
a reduction of consumption of natural resources and control of
waste, dumping and carbon emissions.
ESG RisksBBVA has granted loans totaling 150 million dollars to the subsidiaries
of Enel Green Power (EGP) in Chile and Mexico to support renewable
energy activity in Latin America. These loans have a maturity of five
years and have been backed by their Italian parent company with
two guarantees of 180 million dollars in favor of BBVA.
Science and cultureThe BBVA Foundation, together with the Spanish Ministry of
Education, Culture and Sports, have granted the 29th “Premios
Francisco Giner de los Ríos a la Mejora de la Calidad Educativa”
(Francisco Giner de los Ríos Awards for Educational Quality). These
awards recognize the work of teachers who innovate in the area of
teaching methodology. There are eight categories in all, covering the
different educational levels, with total prize money of 129,000 euros.
BBVA in the Sustainability IndicesBBVA has a prominent position in the main sustainability indices at
international level. The weightings as of March 31, 2014 were as follows:
Corporate responsibility
Further information and contact details are available at
www.bancaparatodos.com
Main sustainability indices in which BBVA participates
Weighting (%)
DJSI World 0.70
DJSI Europe 1.50
DJSI Eurozone 3.00
MSCI World ESG Index 0.46
MSCI World ex USA ESG Index 0.99
MSCI Europe ESG Index 1.66
MSCI EAFE ESG Index 1.10
FTSE4Good Global 0.42
FTSE4Good Global 100 0.71
FTSE4Good Europe 1.01
FTSE4Good Europe 50 1.73
Euronext-Vigeo Europe 120 0.79
Euronext-Vigeo Eurozone 120 0.82
STOXX Global ESG Environmental Leaders 0.50
STOXX Global ESG Social Leaders 0.49
EURO STOXX ESG Leaders 50 1.90
STOXX Europe ESG Leaders 50 1.91
STOXX Global ESG Leaders 0.33
18 Business areas
This section presents and analyzes the most relevant aspects
of the Group’s different areas. Specifically, it shows the
income statement, the balance sheet, the business activity
and the most significant ratios in each of them: loans under
management, customer deposits under management, mutual
funds and pension funds, efficiency ratio, NPA ratio, coverage
ratio and risk premium.
In 2014, the reporting structure of the BBVA Group’s business
areas is basically the same as that reported in 2013:
• Banking activity in Spain, which as in previous years
includes: The Retail network, with the segments of individual
customers, private banking and small businesses; Corporate
and Business Banking (CBB), which handles the SMEs,
corporations and institutions in the country; Corporate &
Investment Banking (CIB), which includes business with
large corporations and multinational groups and the trading
floor and distribution business in the same geographical
area; and other units, among them BBVA Seguros and Asset
Management (management of mutual and pension funds in
Spain). It also includes the portfolios, finance and structural
interest-rate positions of the euro balance sheet.
• Real-estate activity in Spain. This area basically covers
lending to real-estate developers and foreclosed real-estate
assets in the country.
• The United States encompasses the Group’s businesses in
the United States.
• Eurasia, which includes the business carried out in the rest
of Europe and Asia, i.e. the Group’s retail and wholesale
businesses in the area. It also includes BBVA’s stakes in the
Turkish bank Garanti and the Chinese banks CNCB and CIFH.
However, the equity-accounted income of CNCB (excluding
the dividends) from its acquisition until the conclusion of the
new agreement with the CITIC Group in the fourth quarter
of 2013 (which included the sale of 5.1% of the stake in CNCB)
has been reclassified in the Corporate Center under the
heading “Results from corporate operations”.
• Mexico includes the banking and insurance businesses in
the country.
• South America includes the banking and insurance businesses
that BBVA carries out in the region. In the first quarter of 2014,
the historical series in this area has been reconstructed to
exclude the business in Panama, which was sold in the fourth
quarter of 2013, and include it in the Corporate Center.
In addition to the above, all the areas include a remainder
made up of other businesses and of a supplement that
includes deletions and allocations not assigned to the units
making up the above areas.
Lastly, the Corporate Center is an aggregate that contains the
rest of the items that have not been allocated to the business
areas, as it basically corresponds to the Group’s holding
function. It groups together the costs of the head offices
that have a corporate function; management of structural
exchange-rate positions, carried out by the Asset/Liability
Management unit; specific issues of capital instruments
to ensure adequate management of the Group’s global
solvency; portfolios and their corresponding results, whose
management is not linked to customer relations, such as
industrial holdings; certain tax assets and liabilities; funds
due to commitments with pensioners; goodwill and other
intangibles. It also comprises the result from certain corporate
operations carried out in 2013, such as the earnings and
capital gains from the pension business disposals in Latin
America during 2013; those from BBVA Panama taking into
consideration the capital gain from its disposal (in the fourth
quarter); and the effect of the repricing of the stake in CNCB
to market value following the signing in the fourth quarter
of 2013 of the new agreement with the CITIC group, which
includes the sale of 5.1% of the stake in CNCB. It also includes
the equity-accounted earnings from CNCB (excluding the
dividends).
In addition to this geographical breakdown, supplementary
information is provided for all the wholesale businesses
carried out by BBVA, i.e. Corporate & Investment Banking
(CIB). This aggregate business is considered relevant to better
understand the BBVA Group because of the characteristics of
the customers served, the type of products offered and the
risks assumed.
Lastly, as usual, in the case of the Americas and Eurasia
(basically Garanti), the results of applying constant exchange
rates are given in addition to the year-on-year variations at
current exchange rates.
The Group compiles information by areas based on units
at the same level, and all the accounting data related to the
business they manage are recorded in full. These basic units
are then aggregated in accordance with the organizational
structure established by the Group for higher-level units
and, finally, the business areas themselves. Similarly, all the
companies making up the Group are also assigned to the
different units according to the geographical area of their
activity.
Once the composition of each business area has been defined,
certain management criteria are applied, of which the
following are particularly important:
Business areas
19Business areas
• Capital. Capital is allocated to each business according to
economic risk capital (ERC) criteria. This is based on the
concept of unexpected loss at a specific confidence level,
depending on the Group’s capital adequacy targets. The
calculation of the ERC combines credit risk, market risk,
structural balance-sheet risk, equity positions, operational
risk, fixed-asset risk and technical risks in the case of
insurance companies. These calculations are carried out
using internal models that have been defined following the
guidelines and requirements established under the Basel
III capital accord, with economic criteria taking precedence
over regulatory ones.
ERC is risk-sensitive and thus linked to the management
policies of the businesses themselves. It standardizes
capital allocation between them in accordance with the
risks incurred. In other words, it is calculated in a way that
is standard and integrated for all kinds of risks and for each
operation, balance or risk position, allowing its risk-adjusted
return to be assessed and an aggregate to be calculated for
profitability by client, product, segment, unit or business area.
Mayor income statement items by business area(Million euros)
Business areas
BBVA Group (1)
Banking activity
in Spain
Real-estate activity
in Spain
The United States Eurasia (1) Mexico
South America
∑ Business areas
Corporate Center
1Q14
Net interest income 3,391 933 (9) 345 192 1,173 934 3,568 (177)
Gross income 5,051 1,756 (35) 517 365 1,536 1,160 5,299 (248)
Operating income 2,438 1,050 (74) 166 187 968 666 2,964 (526)
Income before tax 1,017 552 (318) 143 134 597 503 1,610 (593)
Net attributable profit 624 386 (231) 105 105 453 244 1,063 (439)
1Q13
Net interest income 3,623 1,073 14 347 241 1,087 1,030 3,791 (169)
Gross income 5,419 1,664 1 503 458 1,514 1,327 5,467 (48)
Operating income 2,661 897 (38) 156 280 936 762 2,994 (333)
Income before tax 831 200 (465) 141 172 570 585 1,203 (372)
Net attributable profit 1,734 579 (343) 94 126 429 300 1,184 550
(1) Pro forma financial statements with the revenues and expenses of the Garanti Group consolidated in proportion to the percentage of the Group’s stake.
• Internal transfer prices. Within each geographical area,
internal transfer rates are applied to calculate the net
interest income of its businesses, under both the asset and
liability headings. These rates are composed of a market
rate that depends on the operation’s revision period, and
a liquidity premium that aims to reflect the conditions and
outlook for the financial markets in each area. Earnings
are distributed across revenue-generating and distribution
units (e.g., in asset management products) at market
prices.
• Allocation of operating expenses. Both direct and indirect
costs are allocated to the business areas, except where
there is no clearly defined relationship with the businesses,
i.e. when they are of a clearly corporate or institutional
nature for the Group as a whole.
• Cross-selling. In some cases, consolidation adjustments
are required to eliminate shadow accounting entries in the
earnings of two or more units as a result of cross-selling
incentives.
20 Business areas
Banking activity in Spain
Highlights in the first quarter of 2014
• Start of the recovery.
• Change in trend in the performance of certain loan portfolios.
• Improvement of the trend of additions to NPAs with respect to previous quarters.
• Customer spread improvement.
• Toward normalized levels of provisions.
Net attributable profit(Million euros)
897827
735629
1050105010501050
579
178
-265
97
386386386386
-400
-200
0
200
400
600
800
1.000
1.200
Operating income(Million euros)
897827
735629
1,050
1Q 2Q 3Q 4Q
+17.0%
2013 20141Q
178
579
97
386
1Q 4Q
–33.3%
20141Q2Q
265
3Q
2013
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Net interest income/ATA(Percentage)
1Q 2Q 1Q2013 2014
1,121,05
0,920,97
1,03
0
1
2
1.12
3Q
0.97
4Q
0.92
1.031.05
Business activity(Year-on-year change. Data as of 31-03-2014)
9.9%
Loans under management
4.5%
Customer depositsunder management
-10
-8
-6
-4
-2
0
2
4
6
21Banking activity in Spain
Balance sheet 31-03-14 ∆% 31-03-13
Cash and balances with central banks 4,468 3.9 4,299
Financial assets 108,378 2.7 105,502
Loans and receivables 189,837 (8.4) 207,171
Loans and advances to customers 174,561 (8.9) 191,632
Loans and advances to credit institutions and other 15,276 (1.7) 15,539
Inter-area positions 8,735 (46.3) 16,279
Tangible assets 746 (8.3) 814
Other assets 1,489 (8.5) 1,627
Total assets/liabilities and equity 313,652 (6.6) 335,691
Deposits from central banks and credit institutions 57,306 1.0 56,750
Deposits from customers 156,123 2.9 151,749
Debt certificates 48,236 (25.7) 64,892
Subordinated liabilities 2,123 (30.0) 3,033
Inter-area positions - - -
Financial liabilities held for trading 40,193 (13.3) 46,347
Other liabilities 1,365 (12.5) 1,559
Economic capital allocated 8,307 (26.9) 11,361
Relevant business indicators 31-03-14 31-12-13 31-03-13
Loans under management (1) 170,691 168,594 189,359
Customer deposits under management (2) 136,192 136,921 130,369
Mutual funds 23,783 22,298 19,259
Pension funds 20,994 20,428 19,019
Efficiency ratio (%) 40.2 49.4 46.1
NPA ratio (%) 6.4 6.4 4.3
NPA coverage ratio (%) 41 41 50
Risk premium (%) 1.04 1.36 1.28
(1) Includes funding for segments managed by CBB through fixed-income.(2) Excluding repos. Including promissory notes sold by the retail network.
Financial statements and relevant business indicators (Million euros and percentage)
Income statement 1Q14 ∆% 1Q13
Net interest income 933 (13.0) 1,073
Net fees and commissions 348 1.4 343
Net trading income 437 97.2 221
Other income/expenses 39 43.8 27
Gross income 1,756 5.5 1,664
Operating expenses (706) (7.9) (767)
Personnel expenses (437) (9.8) (485)
General and administrative expenses (242) (5.7) (257)
Depreciation and amortization (26) 6.0 (25)
Operating income 1,050 17.0 897
Impairment on financial assets (net) (463) (25.1) (618)
Provisions (net) and other gains (losses) (35) (55.9) (79)
Income before tax 552 176.3 200
Income tax (165) 203.4 (54)
Net income from ongoing operations 387 166.2 145
Results from corporate operations - - 440
Net income 387 (33.9) 585
Non-controlling interests (1) (87.0) (7)
Net attributable profit 386 (33.3) 579
Net attributable profit (excluding results from corporate operations) 386 178.4 139
Highlights
Some aspects in the first quarter of the year
have a positive influence on the financial
statements in the area, such as improved
customer spreads, a decline in additions to NPA
and signs of an incipient increased demand
for loans, from some specific segments. These
positive elements have to be put into the
context of the steady recovery reflected in the
country’s main economic indicators.
Macro and industry trends
In the first quarter of 2014 the rate of recovery
of the Spanish economy has continued to
gain traction, with quarterly GDP growth
0.4% up on the last quarter of 2013. Improved
economic activity and employment (though
the improvement in jobs is still very moderate)
is supported by a reduction in financial
tension, looser fiscal policy, the soundness of
the foreign sector and the positive impact of
some reforms.
The following is of note with respect to the
financial system:
• The financial assistance program
concluded officially on January 22. In
its latest monitoring report published in
February, the International Monetary Fund
(IMF) highlighted the success and speed
of achievement of all the restructuring
measures agreed with the “Troika”.
• Royal Decree-Law 4/2014 reforming the
Insolvency Proceedings Act, was passed
on March 7. It streamlines and makes
more flexible the processes for reaching
refinancing agreements and eliminates
rigidities in the law on insolvency and
composition with creditors.
• The deleveraging process continues,
although the flow of new consumer finance
operations and loans to small companies
for under a million euros continues to
improve on the previous year.
• For the first time in many quarters, the
balance of total non-performing loans
declined, and in February the NPA ratio in
the system fell slightly to 13.4%.
• The improved market conditions have
allowed some banks to tap the wholesale
markets and to continue to repay ECB
loans; the March figure was slightly under
€184 billion.
22 Business areas
Activity
At the close of the first quarter of 2014 a
change in trend could be seen in some loan
portfolios. This is having an influence in the
total volume of lending managed by the area,
with a balance as of 31-Mar-2014 showing
a lower year-on-year fall than in previous
quarters. In fact, the quarterly rate of change
is beginning to be positive (up 1.2%). Within
this caption, funding for segments managed
by CBB through fixed-income is also included.
• In CBB, the balance of loans under
management at the close of March has
increased compared with the figure for the
close of the previous quarter: +2.6%.
• There is also more demand for consumer
loans, largely spurred by the marketing of
new “One-Click” consumer loans, which
have proved very popular with customers.
With respect to asset quality, the NPA ratio
has declined slightly by 2 basis points over
the quarter and the figure for gross additions
to NPA has improved on previous quarters.
Stability of the coverage ratio and a reduction
of the risk premium.
On the liabilities side, customer deposits
under management increased by 4.5% in
year-on-year terms, or 8.8% excluding
promissory notes sold by the network in the
same period in 2013; but they fell back slightly
over the quarter (down 0.5%) due to the
commercial policy applied in recent months
of prioritizing profitability over volume. As a
result, there has been a fall in the cost of funds
gathered between January and March 2014,
which is having a positive influence on net
interest income in the area.
Off-balance sheet funds, including customer
portfolios, have risen by 17.3% year-on-year
and 4.7% over the quarter. As a result, the
BBVA Group fund manager in Spain has
maintained its clear leadership position.
Earnings
The year-on-year comparison of earnings
in the area is strongly influenced by the
following factors:
• Elimination of the “floor clauses” in
residential mortgage loans in May 2013,
which were in place throughout the whole
of the first quarter of last year.
• The capital gains generated in March
2013 by the reinsurance operation on
the individual life and accident insurance
portfolio.
Net interest income in the first quarter
of 2014 declined by 13.0% year-on-year,
influenced by the effect of the “floor clauses”.
Excluding this impact, the figure is positive,
despite the reduction in the stock of loans
and an environment of low interest rates,
thanks to good price management in both
deposits and lending, which is leading to a
positive widening of customer spreads in
recent months.
Good performance of income from fees and
commissions, largely due to the growing
revenue from asset management, credit
cards and wholesale banking operations.
There was a significant contribution from NTI
as a result of a positive performance by the
Global Markets unit and good management
of the structural risks on the balance sheet.
All the above, combined with the better trend
in the other income/expenses heading, has
led to a year-on-year rise of 5.5% in gross
income.
Operating expenses continue to be held in
check, with a reduction of €61m on the figure
for the same period last year, amounting to a
year-on-year saving of 7.9%.
This performance of revenue and expenses
has improved the efficiency ratio and
increased the operating income of the area
in comparison with the data for the same
period last year.
A decline in impairment losses on financial
assets, which are at levels clearly below those
of the quarterly average in the previous year.
Overall, net attributable profit of €386m was
generated in the first quarter of 2014, 33.3%
below the figure in the same period of 2013,
but 178.4% up excluding the one-off figure
from the reinsurance operation mentioned
above.
Main highlights
The quarter has been very productive in
terms of the launch of new products and
services and commercial campaigns, above
all in CBB:
23Banking activity in Spain
• In the SME segment, the most notable
aspect has been the implementation of
the new model for attracting SMEs, with
the goal “to be the SME bank”, win market
share and improve positioning within this
segment. The commercial actions have
aimed at supporting new lending, with a
particular focus on internationalization plans.
Of particular note has been the launch of
“Credipyme”, a tool that calculates the risk
profile and capacity for debt of SMEs and
estimates what finance can be provided for
them. In addition, the second edition of the
“Plan+Negocio” plan has been launched. It
has also been extended to SMEs to allow
BBVA to boost the management of finance
for companies, help attract new customers
and build loyalty.
• In corporate banking there has been
outstanding participation by BBVA in all
the high-yield issues of Spanish companies,
with placement volumes of more than
€1,300m.
• Excellent management of ICO funds.
Cumulative half-monthly data through to
April 6, 2014 shows that BBVA has now
formalized 12,349 operations amounting
to €776m, representing over double the
operations contracted in the same period
last year and three times the amount
formalized. BBVA’s market share in ICO
credit facilities is now 16.0%, 131 basis points
more than a year ago.
• In insurance the “PPA BBVA” campaigns
made a big impact. Customers were
guaranteed a minimum return of 2.6%
for a time horizon of 10 years; also the
communication and marketing making
people aware of the new “Multirriesgo
Hogar” (Multi-peril home) insurance which
has led to the writing of 34,000 new
policies in the quarter.
• In the digital world new products are
being developed for digital channels, such
as the “Préstamo Inmediato” (Immediate
loan), which assigns a credit limit to each
customer instantly via bbva.es or any
BBVA ATM. This new loan has proved
popular and increased revenue year-on-year
by 85%, as well as accounting for 10% of
the transactions via digital channels. In
addition, there has been a high rate of
penetration by SMEs in online banking,
with 63.6% being active customers of this
banking channel.
With respect to prizes and awards, BBVA
Asset Management has been named the
best Spanish manager in the 26 to 40 rated
funds category by the European mutual fund
analyst Fundclass. The award recognizes the
consistency of fund management.
The terms of attracting customers and
building their loyalty the following are worthy
of note:
• Increase of over 10,000 in the number of
new customers in the Premium segment
over the quarter.
• The customer digitization process
continues at a good pace. At the end of
the quarter it has reached more than 2.2
million customers who are active users of
the web.
• Over 140,000 customers now enjoy all the
advantages of BBVA Wallet, a product that
allows them to keep all their cards in virtual
form on their cell phones and access all
their functionalities.
Finally , with respect to corporate
responsibility, the “Yo Soy Empleo” (I am
employment) program has supported 2,657
SMEs through March 31, 2014 in creating
4,301 new jobs since its launch in February
2013, with 70% of the jobs being permanent
contracts. Those finding jobs supported by
BBVA had been unemployed for an average of
13 months.
24 Business areas
Real-estate activity in Spain
Highlights in the first quarter of 2014
• The adjustment of residential supply is practically complete.
• Prices have started to show signs of stabilization.
• New reduction in BBVA’s net exposure to the real-estate sector.
• Maintenance of real-estate sales levels.
• Favorable performance in non-performing assets.
Coverage of real-estate exposure in Spain (Million of euros as of 31-03-14)
Risk amount Provision% Coverage
over risk
NPL + Substandard 9,700 5,008 52
NPL 8,342 4,515 54
Substandard 1,358 493 36
Foreclosed real estate and other assets 13,118 6,755 51
From real-estate developers 9,159 5,080 55
From dwellings 2,961 1,215 41
Other 998 460 46
Subtotal 22,818 11,763 52
Performing 3,114 - -
With collateral 2,833
Finished properties 2,082
Construction in progress 304
Land 447
Without collateral and other 281
Real-estate exposure 25,932 11,763 45
Note: Transparency scope according to Bank of Spain Circular 5/2011 dated November 30.
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HighlightsIn general terms, business activity in the first
quarter of 2014 maintains the same trends as
in previous quarters: reduction of exposure to
developer risk and maintenance of the level of
property sales with respect to the same period
last year.
The income statement for the business
area continues to be shaped by three main
elements: loan-loss provisioning to the
developer sector, the effect of real-estate
sales and the repricing of foreclosed assets
to market value. These elements have had a
markedly less negative impact in the quarter
than in previous periods.
Industry trendsIn the first three months of 2014, home sales
have improved compared with the figures
recorded between January and March 2013.
Financial conditions remain attractive in the
mortgage market, with interest rates and
affordability ratios at all-time lows. This
year-on-year improvement in sales applies to
all markets, but particularly to those located on
the Mediterranean coast.
In this context, the decline in prices has
continued to ease, in line with that observed
in the previous quarter. In some markets,
especially on the islands, prices are already
showing signs of a certain stability.
However, with respect to production of new
homes, the number of homes started remains
at historical lows, with clear signs of having
bottomed out, but still with no signs of recovery.
Overall, the residential real-estate sector
continues to adjust, and the economic
recovery that appears to have begun in Spain
25Real-estate activity in Spain
could foreseeably result in a gradual increase of
demand and stabilization of prices throughout
the year.
ExposureThere are two very different realities for the
Group within the real-estate sector. On the one
hand, net exposure to the developer segment
(lending to developers plus the developers’
foreclosed assets) has been falling every quarter
and will continue to decline in the future. On
the other, there are the retail foreclosures, i.e.
those from the residential mortgage sector
for individuals. Their recent increase has been
linked to the increase in gross additions to NPA
in this portfolio in 2008 and 2009, though this
rate of additions is expected to slow in 2014.
BBVA’s net exposure to the real-estate sector
in Spain as of 31-Mar-2014 stands at €14,169m,
a decrease of 8.0% on the same date the
previous year and of 2.8% since late 2013.
Non-performing assets fell with respect to the
close of 2013 (down 5.7%).
Within the exposure to the Spanish real-estate
sector, property securing mortgage loans to
individuals have barely increased 3.0% since
December 2013, marking a slowdown with
respect to previous quarter-on-quarter rates of
change.
As of 31-Mar-2014, coverage of non-performing
and substandard loans reached 52% and that
of assets from foreclosures and purchases
stood at 51%. As a whole, the overall real-estate
exposure coverage closed March at 45%, a
slight improvement of 40 basis points in the
quarter.
Sales of real-estate assets in the quarter totaled
3,078 units. If third-party sales are added to the
total, the number of units sold rises to 4,996,
26.8% more than in the same period in 2013.
EarningsAs discussed at the beginning of the chapter,
the highlights of the area’s quarterly earnings
are the less negative impact of loan-loss
provisions for developer loans, the decreased
deterioration in the value of foreclosed
real-estate assets and a nearly insignificant
effect of the sale of properties.
The income statement also includes: the
consolidation by the equity method of the
stake in Metrovacesa, which is registered
under the “Other income/expenses” heading;
the positive results from portfolio sales of
stakes in associated companies; income
from rentals; and operating expenses, that
fall year-on-year.
In the first quarter of 2014, BBVA’s
real-estate business in Spain registered a
loss of €231m, notably less than the €343m
loss posted the previous year, due basically
to the lesser need for loan-loss provisions
and lower deterioration in real-estate assets
as compared to previous quarters.
Balance sheet 31-03-14 ∆% 31-03-13
Cash and balances with central banks 5 45.7 4
Financial assets 942 (17.7) 1,144
Loans and receivables 10,072 (16.6) 12,078
Loans and advances to customers 10,072 (16.6) 12,078
Loans and advances to credit institutions and other - - -
Inter-area positions - - -
Tangible assets 1,600 (11.0) 1,799
Other assets 7,387 4.6 7,065
Total assets/liabilities and equity 20,006 (9.4) 22,089
Deposits from central banks and credit institutions - - -
Deposits from customers 100 (40.5) 168
Debt certificates - - -
Subordinated liabilities 962 13.8 845
Inter-area positions 15,073 (14.8) 17,695
Financial liabilities held for trading - - -
Other liabilities - - -
Economic capital allocated 3,871 14.5 3,381
Financial statements (Million euros)
Income statement 1Q14 ∆% 1Q13
Net interest income (9) n.m. 14
Net fees and commissions 1 (57.2) 3
Net trading income 15 21.0 12
Other income/expenses (43) 51.2 (28)
Gross income (35) n.m. 1
Operating expenses (38) (1.6) (39)
Personnel expenses (20) (15.5) (24)
General and administrative expenses (13) 42.2 (9)
Depreciation and amortization (5) (10.5) (6)
Operating income (74) 92.7 (38)
Impairment on financial assets (net) (77) (49.5) (153)
Provisions (net) and other gains (losses) (168) (38.7) (273)
Income before tax (318) (31.5) (465)
Income tax 90 (28. 4) 126
Net income (228) (32.6) (339)
Non-controlling interests (3) (31.7) (4)
Net attributable profit (231) (32.6) (343)
26 Business areas
The United States
Highlights in the first quarter of 2014
• High rate of activity growth.
• Excellent risk indicators.
• Revenue growth after several quarters of decreases.
• The BBVA Compass capital plan was approved with no objections.
• Acquisition of Simple.
150173
156
121
166 166 166 166
91104 109
75
105 105 105 105
0
100
200
300
Operating income(Million euros at constant exchange rate)
Net attributable profit(Million euros at constant exchange rate)
(1) At current exchange rate: +6.4%. (1) At current exchange rate: +11.8%.
150
173156
121
166
1Q 2Q 3Q 4Q2013 2014
1Q
91104 109
75
105
1Q 2Q 3Q 4Q2013 2014
1Q
+10.4% (1) +16.1% (1)
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Net interest income/ATA(Percentage. Constant exchange rate)
1Q 2Q 1Q2013 2014
2,59 2,57 2,62 2,57 2,57
0
1
2
3
2.572.59
3Q
2.57
4Q
2.62 2.57
0
2
4
6
8
10
12
1413.4%
Loans under management
6.4%
Customer depositsunder management
Business activity(Year-on-year change at constant exchange rate. Data as of 31-03-2014)
27The United States
Highlights
The quarter has been very positive in the
United States, where earnings reflect the
improving economic activity of the last
few quarters. In addition, the capital plan
presented by BBVA Compass to the Fed has
received unqualified approval.
Also worth noting is the acquisition of Simple,
which has been consolidated into the area’s
financial statements.
Macro and industry trends
The U.S. economy slowed its rate of growth
slightly in the first quarter of 2014. This
was expected, given the high growth rates
achieved at the end of 2013. The slowdown
was also partly the result of adverse weather
conditions that impacted activity and the
labor market.
The Fed has started the process of reducing
its monetary expansion program, without
this leading to financial tensions or additional
rate hikes. However, it has slowed mortgage
refinancing activity slightly. The Fed remains
cautious and prepared to modulate the rate of
tapering its quantitative easing program if it is
not supported by economic data.
In exchange rates, the euro has remained
strong against the dollar, supported by an
improved perception of Europe’s peripheral
countries. As a result, the impact of the U.S.
currency on the Group’s financial statements
was negative over the last 12 months,
although in the quarter it was neutral on
the balance sheet and business activity and
slightly negative on earnings. As in previous
reports, all the comments below on rates of
change are expressed at a constant exchange
rate, unless expressly stated otherwise.
The most notable event with respect to the
financial system was the publication in March
of the results of the stress tests carried out on
the 30 largest banks in the country. This year
for the first time the subsidiaries of foreign
banks have been included. As mentioned,
BBVA Compass has passed these tests and
thus its capital plans have been accepted
without any objections by the Fed.
With respect to activity trends in the system
loan growth continues being moderate, the
credit market is healthy and deposits grow at
a moderate according to the latest available
information as of March 2014.
Balance sheet 31-03-14 ∆% ∆% (1) 31-03-13
Cash and balances with central banks 4,479 (7.1) 0.1 4,819
Financial assets 7,358 (12.3) (5.6) 8,394
Loans and receivables 41,083 4.6 12.7 39,265
Loans and advances to customers 39,621 6.9 15.1 37,076
Loans and advances to credit institutions and other 1,461 (33.3) (28.1) 2,190
Inter-area positions - - - -
Tangible assets 658 (14.8) (8.2) 772
Other assets 2,180 (8.9) (1.9) 2,393
Total assets/liabilities and equity 55,756 0.2 7.9 55,643
Deposits from central banks and credit institutions 3,683 (31.4) (26.1) 5,368
Deposits from customers 42,534 3.5 11.4 41,094
Debt certificates - - - -
Subordinated liabilities 651 (25.1) (19.3) 869
Inter-area positions 1,673 84.3 98.5 908
Financial liabilities held for trading 178 (42.6) (38.2) 310
Other liabilities 4,748 4.5 12.5 4,545
Economic capital allocated 2,289 (10.2) (3.3) 2,549
Relevant business indicators 31-03-14 31-12-13 31-03-13
Loans under management (1) 40,753 39,276 35,946
Customer deposits under management (1-2) 39,546 38,456 37,150
Mutual funds - - -
Pension funds - - -
Efficiency ratio (%) 67.9 69.8 69.0
NPA ratio (%) 1.0 1.2 1.8
NPA coverage ratio (%) 160 134 109
Risk premium (%) 0.20 0.20 0.17
(1) Figures at constant exchange rate.(2) Excludes repos.
Financial statements and relevant business indicators (Million euros and percentage)
Income statement 1Q14 ∆% ∆% (1) 1Q13
Net interest income 345 (0.6) 3.2 347
Net fees and commissions 133 9.2 13.5 122
Net trading income 37 3.9 8.2 35
Other income/expenses 2 n.m. n.m. (2)
Gross income 517 2.9 6.8 503
Operating expenses (351) 1.3 5.2 (347)
Personnel expenses (206) (0.5) 3.4 (207)
General and administrative expenses (102) 6.5 10.6 (95)
Depreciation and amortization (43) (1.4) 2.3 (44)
Operating income 166 6.4 10.4 156
Impairment on financial assets (net) (20) 23.4 28.1 (16)
Provisions (net) and other gains (losses) (3) n.m. n.m. 1
Income before tax 143 1.1 4.9 141
Income tax (38) (20.4) (17.4) (47)
Net incomes 105 11.8 16.1 94
Non-controlling interests - - - -
Net attributable profit 105 11.8 16.1 94
28 Business areas
Main highlights
On March 28, the Fed published the results of its comprehensive
capital analysis and review (CCAR) of the main financial
institutions in the country. BBVA Compass was included in the
list and received unqualified approval for its capital plan. In
addition, the Fed has revealed that the bank complies with the
minimum regulatory capital requirements in the hypothetical
case of a severely adverse scenario, as determined by the
regulator. The above demonstrates the solvency of BBVA’s
subsidiary in the country and recognizes the soundness of the
capital management policies and procedures of BBVA Compass.
BBVA has agreed the purchase for USD 117m of Simple , a U.S.
company that has created a new model of digital banking.
This operation is part of BBVA’s strategy to be a leader in the
technological changes that are transforming the financial
industry. Simple now has over 100,000 customers across
the country, who are provided with a set of digital tools to
rationalize their expenses and optimize saving. Customers
are given a Simple Visa card, as well as advanced applications
for Android and Apple, which include tools for saving and
outstanding customer service. Simple will continue to operate
under the same brand, with the same philosophy, and the
same customer-centric approach.
The following are of note with respect to new products and
services:
• Launch of the BBVA Compass Payroll Service to help
business customers, especially those operating SMEs
manage their payrolls via online banking. This service
includes payroll automation, tax management and various
tools that provide customizable reports.
• The new Secure Send digital service through which BBVA
Compass customers can send money to 20 countries at
any time thanks to the advantages offered by online and
mobile banking.
The following projects are worth noting in terms of organic
growth:
• Received regulatory approval to continue expansion of
commercial loan production branches for the business
segment in San Francisco, Los Angeles, Seattle, Nashville,
Charlotte and Raleigh.
• Expanded the reach of BBVA Compass in Texas through an
agreement that gives the bank branding rights to more than
300 ATMs located in H-E-B stores, the leading Texas-based
grocery store chain.
Finally, in brand recognition and corporate responsibility, the
highlights are:
• BBVA Compass has become the official sponsor of the
Houston Dash, the newest member of the National Women’s
Soccer League. In addition, BBVA Compass and Dash will
work together on several community initiatives in Houston.
• BBVA Compass was among the four companies cited
for high-quality sustainability reporting in The Corporate
Citizen, Boston College’s Carroll School of Management
magazine.
Activity
The following summarizes activity in the United States during
the quarter:
• Strong growth in loans under management in the area (up 13.4%
year-on-year and 3.8% on the quarter), with progress in
practically all the portfolios. Loan demand in BBVA Compass,
which has been trending above peer levels, remains robust,
particularly in the corporate (commercial) portfolio, where
growth continues to accelerate to 17.1% over the year. There was
also outstanding growth in the commercial real-estate segment
(companies with collateral), with growth of 15.8% on the close of
the first quarter of 2013, and increases in residential mortgages
and consumer loans, which grew by 9.8% and 7.4% year-on-year,
respectively. Within the consumer finance segment, there was a
significant increase in auto lending.
• This strong performance of lending has not affected
the area’s asset quality negatively, as the main risk
management indicators improved over the quarter. The
NPA ratio fell by 24 basis points since the end of 2013 to
1.0% and the coverage ratio increased by 25.8 percentage
points to 160%.
• Customer deposits under management also increased
significantly, by 6.4% in the last 12 months, supported once
more by the favorable performance of lower-cost deposits,
i.e. current and savings accounts. It’s worth noting the slight
increase in time deposits over the quarter (1.1%).
Earnings
The most relevant aspects of the income statement in the area
are the year-on-year growth of revenue after a few quarters
of decline, the increase in operating expenses and the rise in
impairment losses on financial assets. Overall, the United States
generated a net attributable profit in the quarter of €105m,
16.1% above the figure obtained in the same period in 2013 and
40.5% above that in the fourth quarter last of 2013.
The positive performance of gross income is due to the
strength of economic activity; increased investment banking
operations, with a favorable effect on income from fees and
commissions; and the good performance of the Global Markets
unit, whose gross income grew by 58.8% on the same period
in 2013.
The year-on-year growth in operating expenses is strongly
influenced by the acquisition of Simple and the implementation
of strategic and technological projects in the area (these
basically affect the general expenses heading). Despite this, the
increase is lower than that of revenue, so as a result operating
income in the United States grew year-on-year by 10.4%, after a
number of consecutive quarters of decline.
Finally, the greater volume of activity has led to an increase
in impairment losses on financial assets, though the risk
premium in the area has remained stable and closed the
quarter at 0.20%, the same level recorded in 2013.
29Eurasia
Eurasia
Highlights in the first quarter of 2014
• Lending activity continues to deliver stable remains stable.
• Stability also in risk indicators.
• Customer deposits continue to perform well.
• Sound contribution by Garanti in a complex context.
238
353
134169
187 187 187 187
102
209
6132
105 105 105 105
0
50
100
150
200
250
300
350
400
Net attributable profit(Million euros at constant exchange rates)
Operating income(Million euros at constant exchange rates)
238
353
134169
187
1Q 2Q 3Q 4Q
–21.4% (1)
2013 20141Q
102
209
6132
105
1Q 2Q 3Q 4Q
+3.1% (1)
2013 20141Q
(1) At current exchange rates: —33.3%. (1) At current exchange rates: —16.4%.
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Net interest income/ATA(Percentage. Constant exchange rates)
1Q 2Q 1Q2013 2014
1,791,86
1,73
1,911,85
0
1
2
1.79
3Q
1.91
4Q
1.731.851.86
0.6%
11.3%
0
2
4
6
8
10
12
Loans under management Customer depositsunder management
Business activity(Year-on-year change at constant exchange rates. Data as of 31-03-2014)
30 Business areas
Highlights
The trends in the area’s business activity were
similar, in general, to those seen in previous
quarters, although there has been greater
stability in lending volumes with wholesale
customers, and also some moderation in the
growth of Turkish lira-denominated portfolios
from Garanti.
Earnings in Eurasia were strongly affected
by the new upturn in the cost of deposits in
Garanti, in addition to the one experienced
toward the end of 2013, and by the lower
volume of impairment losses on financial
assets.
Macro and industry trends
There was a slight recovery in economic
activity in the euro zone in the first quarter of
2014 (GDP quarter-on-quarter growth of 0.3%).
However, there are two risk factors that could
derail this recovery: the strength of the euro
exchange rate, which could compromise the
good performance of European exports; and
the recent geopolitical tensions in Eastern
Europe, which could have an impact in terms
of economic activity and financial stability if,
contrary to expectations, they increase.
As regards the area’s financial system, the
highlights are:
• Key progress toward banking union: the
European Commission and Parliament
have reached a provisional agreement on
the creation of the Single Resolution Fund.
• Comprehensive assessment process for
the 128 banks that at the end of 2014
will be subject to ECB supervision: the
process for selecting the asset portfolios
subject to review has been completed,
and the analysis itself (asset quality review,
AQR) has begun. Its methodology was
announced on March 11. The stress test
that will follow the AQR is being developed
in collaboration with the EBA. The test
methodology is currently under review
and the final version and the details of the
macroeconomic scenarios are expected to
be released before the end of April.
Following several quarters marked by
macro-political uncertainty, Turkey is now
in a period of greater stability. On the
macroeconomic front, the more orthodox
monetary policy of the Central Bank (CBRT)
and the Fed’s increasingly clear roadmap in
Balance sheet (1) 31-03-14 ∆% ∆% (2) 31-03-13
Cash and balances with central banks 2,198 (2.4) 22.0 2,251
Financial assets 8,077 (34.4) (28.5) 12,306
Loans and receivables 29,970 (7.5) 1.3 32,411
Loans and advances to customers 27,284 (7.4) 1.2 29,475
Loans and advances to credit institutions and other 2,686 (8.5) 2.7 2,936
Inter-area positions - - - -
Tangible assets 257 (17.4) (2.6) 311
Other assets 950 (36.0) (23.9) 1,485
Total assets/liabilities and equity 41,451 (15.0) (6.2) 48,763
Deposits from central banks and credit institutions 9,689 (31.4) (26.3) 14,122
Deposits from customers 18,658 (1.9) 12.1 19,026
Debt certificates 941 (13.2) 10.8 1,084
Subordinated liabilities 540 (41.3) (40.9) 919
Inter-area positions 5,490 28.5 28.5 4,274
Financial liabilities held for trading 356 (5.4) (0.0) 376
Other liabilities 2,923 (33.0) (19.1) 4,362
Economic capital allocated 2,854 (38.0) (34.8) 4,601
Relevant business indicators 31-03-14 31-12-13 31-03-13
Loans under management (2) 27,570 27,483 27,415
Customer deposits under management (2-3) 17,497 16,441 15,727
Mutual funds 1,348 1,332 1,388
Pension funds 675 634 644
Efficiency ratio (%) 48.8 42.9 38.8
NPA ratio (%) 3.4 3.4 3.0
NPA coverage ratio (%) 88 87 87
Risk premium (%) 0.67 1.11 1.14
(1) Pro forma financial statements with Garanti Group consolidated in proportion to the percentage of the Group’s stake.
(2) Figures at constant exchange rates.(3) Excluding repos.
Financial statements and relevant business indicators(Million euros and percentage)
Income statement (1) 1Q14 ∆% ∆% (2) 1Q13
Net interest income 192 (20.2) (2.1) 241
Net fees and commissions 89 (15.2) (5.4) 105
Net trading income 61 (33.4) (26.7) 91
Other income/expenses 23 7.8 16.7 21
Gross income 365 (20.4) (7.1) 458
Operating expenses (178) 0.0 14.6 (178)
Personnel expenses (98) 5.2 20.2 (93)
General and administrative expenses (69) (3.3) 10.2 (71)
Depreciation and amortization (11) (18.7) (1.9) (13)
Operating income 187 (33.3) (21.4) 280
Impairment on financial assets (net) (51) (40.1) (34.2) (85)
Provisions (net) and other gains (losses) (2) (90.5) (88.3) (23)
Income before tax 134 (22.4) (5.6) 172
Income tax (29) (38.4) (27.8) (47)
Net income 105 (16.4) 3.1 126
Non-controlling interests - - - -
Net attributable profit 105 (16.4) 3.1 126
31Eurasia
terms of its monetary policy suggest a less volatile environment.
On the political front, the comfortable victory at state level of
the current ruling party in the local elections held at the end of
March has been interpreted positively by the markets because
of the reduction in political uncertainty it entails.
The Turkish financial sector maintains sound levels of
capitalization and a high level of profitability, although the recent
toughening of monetary policy measures and upward interest
rate movements in the quarter are resulting in an increase in
the cost of deposits and squeezing momentarily the margins
of banking institutions. Worth mentioning in business activity
is the moderation of the rate of growth of lending, mainly in
the consumer finance and credit cards segment, while fund
gathering in the private sector continues to grow at over 20% in
year-on-year terms. The NPA ratio remains stable at close to 3%.
In China, business activity is showing signs of a slowdown,
due partly to the measures implemented by the government
to deal with the weaknesses of the economy, in particular, the
growth in lending through the so-called “shadow banking” and
local government borrowing. Over the quarter, the authorities
extended the fluctuation band for the exchange rate, while the
Chinese currency’s trend to appreciate against the U.S. dollar
has been halted.
As for the financial sector, the latest available figures
(December 2013) confirm a moderation in lending growth,
though it is still at very positive levels (up 14.5% year-on-year).
Net interest income remains stable, due partly to the delay
in the liberalization of interest rates on deposits. Asset quality
remains under control, with the NPA ratio close to 1%, despite
the increase in non-performing balances. The indicators on
liquidity and solvency are good, with a loan/deposit ratio of
66% and capitalization levels of 12.2% (CAR under Basel III).
To better understand the changes in the business figures, the
percentages given below refer to constant exchange rates,
unless otherwise indicated.
ActivityAgainst this backdrop, the area’s lending activity has remained
fairly stable over the last twelve months and in the quarter (up
0.6% and 0.3%, respectively). By businesses:
• There has been a decrease in the balance of the wholesale
portfolios in the region (down 9.6% year-on-year), although
it was much less steep than in previous quarters. In fact, the
volume remained practically stable over the quarter (down
0.2%).
• Lending continued to perform favorably in the retail
segments, although in Garanti Bank the growth rate was
somewhat lower than in 2013, given that both Turkish
businesses and consumers have postponed their purchase
decisions due to the political and economic uncertainty of
the last few months. Turkish lira-denominated loans are up
2.7% over the quarter, a figure similar to that for the sector
as a whole, while foreign-currency loans have increased by
0.5%, also in line with the rest of the industry.
Asset quality remains practically stable compared with
the figures for the close of 2013, in terms of both NPA and
coverage ratios. Improvement in the risk premium, which
ended the quarter at 0.67% (1.11% accumulated as of 2013).
Customer deposits under management have performed well
and maintained their volume:
• With wholesale customers (up 18.1% year-on-year), a
segment where the commercial gap fell once again.
• And with retail customers (up 9.3%). Faced with the rising
cost of Turkish lira-denominated deposits, Garanti Bank
has opted to increase its foreign-currency funding. These
deposits have grown over the quarter by 12.1% (up 9%
in the sector in the same period) and gained around 30
basis points in market share over the last three months. In
contrast, Turkish lira-denominated customer funds have
declined 7.0% since December 2013, slightly less than for
the sector as a whole (down 4.0%).
Earnings
Eurasia generated an accumulated net attributable profit to
March 2014 of €105m, a year-on-year increase of 3.1%. Of this
figure, 66% comes from Turkey, 23% from the rest of Europe
and 10% from Asia.
Net interest income is down 2.1% year-on-year, due mainly
to the aforementioned increase in the cost of lira deposits
in Garanti. This impact has been partly offset by the positive
influence of the repricing of loans and the increase of the
portfolio of foreign currency bonds completed by Garanti
over the last few quarters at attractive rates. All this was
especially unfavorable on the year-on-year comparison, as
spreads in Garanti were highest in the first quarter of 2013.
However, in quarter-on-quarter terms, the variation is more
favorable as a result of the decisions taken by the Turkish
bank in recent months in terms of loan repricing and
lower-cost funding.
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32 Business areas
Garanti. Significant data 31-03-14 (1)
31-03-14
Financial statements (million euros)
Attributable profit 250
Total assets 67,925
Loans and advances to customers 40,808
Deposits from customers 35,161
Relevant ratios (%)
Efficiency ratio (2) 48.6
NPA ratio 2.2
Other information
Number of employees 18,930
Number of branches 995
Number of ATMs 3,982
(1) BRSA data for the Garanti Bank.(2) Normalized figure excluding the effect of non-recurrent items.
Year-on-year decline in fees and commissions (down 5.4%),
since fewer operations were closed with wholesale customers
over the quarter, which the good performance of fees and
commissions in Garanti in the same period has been unable to
offset.
Year-on-year reduction of 26.7% in NTI, compared with a
very favorable first quarter in 2013 as a result of the positive
performance of market activity in the area. However, the
performance in the last few months is much improved due
to the upturn in the inflation rate in Turkey which in turn has
increased the remuneration from the portfolio of
inflation-indexed bonds in Garanti. In fact, a comparison of the
area’s NTI in the first quarter of 2014 with the figure for the
fourth quarter of 2013 shows an increase of 186.3%.
Operating expenses are up 14.6% year-on-year, due to a great
extent to the expansion of Garanti’s commercial network
in 2013 (48 branches have been added over the last twelve
months) and to increased inflation in Turkey. It should be noted
that Garanti’s commercial network continues to be at the end
of 2013 the most efficient in the sector, with the best ratios in
terms of loans, deposits and recurring revenue per branch.
The volume of impairment losses on financial assets has
declined year-on-year as a result of a lower volume of generic
provisions, due basically to the decline in Garanti’s loan book, in
particular the consumer finance portfolio.
Main highlights
In terms of corporate responsibility, and specifically support
to entrepreneurs, BBVA has joined the two European
Commission initiatives designed to boost innovation and
leadership in the digital economy in Europe as founding
partner. The Startup Europe Partnership has been launched
with the aim of supporting entrepreneurs and their
technology-based projects, while the European Digital Forum
has become the think tank for entrepreneurs, politicians and
lawmakers. Garanti’s corporate responsibility policy continues
to be focused on improving access to financial services for
the disabled, on education and on supporting entrepreneurs,
especially women. In the first quarter of the year, the activity
carried out by the Women Entrepreneur Executive School,
run by Garanti, has been extended to the city of Diyarbakir, in
the east of the country. Garanti has also signed agreements
with various institutions, including the Bosphorus University
Business Angels Network and the Entrepreneurship
Foundation, to support entrepreneurs and make it easier for
students to access knowledge related to entrepreneurship.
As regards awards and recognitions, Garanti Bank has
been named Best Trade Finance Bank in Turkey by Global
Finance and granted “The 2013 European Rising Star Award
- Cross-Border Funding Acceleration” by MTN-i for its efficient
management of relations with global investors and debt capital
markets. In addition, Garanti Securities was named Best Equity
House at the Europe Banking Awards 2013 organized by
EMEA Finance; Garanti Bank Romania was named Bank of the
Year 2013 by the local publication Nine O’Clock; and Garanti
Fleet, in the automobile category, received The Outstanding
Achievement award at the Interactive Media Awards (IMA) for its
new sales platform.
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33Mexico
Mexico
863886874
993968968968968
395398393
500453453453453
0
100
200
300
400
500
600
700
800
900
1.000
Net attributable profit(Million euros at constant exchange rate)
Operating income(Million euros at constant exchange rate)
(1) At current exchange rate: +3.4%. (1) At current exchange rate: +5.7%.
863 886 874
993 968
1Q 2Q 3Q 4Q
+12.2% (1)
2013 20141Q
395 398 393
500453
1Q 2Q 3Q 4Q
+14.7% (1)
2013 20141Q
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Net interest income/ATA(Percentage. Constant exchange rate)
1Q 2Q 1Q2013 2014
5,27 5,32 5,205,41
5,73
0
1
2
3
4
5
6
5.27
3Q
5.41
4Q
5.20
5.735.32
0
2
4
6
8
10
12
14
10.3%
12.2%
Loans under management Customer depositsunder management
Business activity(Year-on-year change at constant exchange rate. Data as of 31-03-2014)
Highlights in the first quarter of 2014
• Bouyant activity.
• Positive evolution in recurring revenue.
• Stable risk premium.
• BBVA Bancomer, “Best Bank in Mexico” according to Global Finance.
34 Business areas
Highlights
The various commercial initiatives
implemented by BBVA in Mexico since the
start of 2013 have been reflected in the positive
trend in commercial activity and the excellent
performance of the income statement over the
last 12 months.
This strong activity has been mainly boosted
by consumer finance and lending to SMEs
and small businesses. In customer funds, the
mix has continued to improve toward a more
profitable structure, thanks to the favorable
trend in lower-cost transactional deposits.
As a result, BBVA in Mexico has recorded
sound earnings figures in the quarter, with
a significant year-on-year increase in net
attributable profit, based on positive recurring
revenue and a risk premium kept in check.
Macro and industry trends
The Mexican economy has expanded
slightly in the first quarter of 2014, in line with
the growth rates at the end of 2013. Public
spending indicators and exports are showing
the greatest strength. The inflation rate has
returned to within the Central Bank of Mexico’s
(Banxico) target range, after absorbing the
temporary effects of tax changes. These
factors have allowed Banxico to maintain the
benchmark interest rate unchanged at 3.5%.
The country’s financial system maintains high
solvency levels, with a total capital ratio at
15.2% as of January 2014. It also has adequate
liquidity and robust profitability, strongly
supported by financial revenue. Loans to the
private sector are slowing their annual growth
rate, which according to the latest available
information as of February 2014 is 9.5% (12.3% a
year ago) 1. The NPA ratio has increased slightly,
but from a low level.
Lastly, all the comments below on rates
of change will be expressed at a constant
exchange rate, unless expressly stated
otherwise. The year-on-year depreciation of
the Mexican peso against the euro, both in
terms of final and average exchange rates,
has a negative impact on the Group’s financial
statements. Over the quarter, the effect is
slightly negative in the income statement and
practically neutral in the balance sheet and
activity.
Balance sheet 31-03-14 ∆% ∆% (1) 31-03-13
Cash and balances with central banks 5,299 (19.8) (8.6) 6,604
Financial assets 32,502 13.0 28.7 28,761
Loans and receivables 42,670 (5.3) 7.9 45,063
Loans and advances to customers 40,378 (0.3) 13.6 40,495
Loans and advances to credit institutions and other 2,292 (49.8) (42.9) 4,568
Tangible assets 1,333 1.8 16.0 1,310
Other assets 3,685 6.8 21.6 3,451
Total assets/liabilities and equity 85,490 0.4 14.3 85,188
Deposits from central banks and credit institutions 9,366 24.8 42.2 7,504
Deposits from customers 44,344 4.5 19.0 42,438
Debt certificates 3,883 (13.4) (1.4) 4,485
Subordinated liabilities 3,638 (18.3) (6.9) 4,451
Financial liabilities held for trading 6,890 (0.9) 12.8 6,956
Other liabilities 12,809 (14.2) (2.3) 14,937
Economic capital allocated 4,559 3.2 17.6 4,417
Relevant business indicators 31-03-14 31-12-13 31-03-13
Loans under management (1) 38,768 38,700 35,163
Customer deposits under management (1-2) 41,313 40,932 36,827
Mutual funds 17,191 16,896 18,641
Pension funds - - -
Efficiency ratio (%) 37.0 37.6 38.2
NPA ratio (%) 3.4 3.6 3.7
NPA coverage ratio (%) 114 110 117
Risk premium (%) 3.51 3.55 3.57
(1) Figures at constant exchange rate.(2) Including all the repos.
Financial statements and relevant business indicators (Million euros and percentage)
Income statement 1Q14 ∆% ∆% (2) 1Q13
Net interest income 1,173 7.9 17.1 1,087
Net fees and commissions 261 (4.1) 4.1 272
Net trading income 48 (25.0) (18.6) 65
Other income/expenses 54 (41.2) (36.1) 91
Gross income 1,536 1.4 10.1 1,514
Operating expenses (568) (1.8) 6.6 (578)
Personnel expenses (244) (0.2) 8.3 (245)
General and administrative expenses (280) (4.7) 3.5 (293)
Depreciation and amortization (44) 9.7 19.1 (40)
Operating income 968 3.4 12.2 936
Impairment on financial assets (net) (355) 0.9 9.5 (352)
Provisions (net) and other gains (losses) (16) 12.3 21.9 (14)
Income before tax 597 4.7 13.7 570
Income tax (143) 1.7 10.4 (141)
Net income 454 5.7 14.7 429
Non-controlling interests - - - -
Net attributable profit 453 5.7 14.7 429
(1) Source: CNBV. Banks with Sofomes without subsidiaries through February 2014.
35Mexico
Income from fees and commissions has increased at a more
moderate pace (4.1% year-on-year), due to lower revenue from
operations from investment banking than in the previous year,
when there was a record number of corporate issues on the
Mexican debt and capital markets.
Operating expenses grew year-on-year less than gross income
(up 6.6% as against 10.1%). As a result, the efficiency ratio has
improved by over 120 basis points over the last 12 months to
37.0%. BBVA thus maintains its position as one of the most
efficient banks in the Mexican system.
Lastly, there has been an increase in impairment losses on
financial assets, although the risk premium remained stable
and closed the quarter at 3.51%, five basis points below the
cumulative figure for 2013.
Main highlights
BBVA Bancomer has successfully placed a 10-year senior bond
issue for USD 750m, with an interest rate of 4.375%, a very
similar figure to that of the Mexican sovereign bond. Moody’s
has given it an A2 rating with a stable outlook. The issue was
placed on international markets and was oversubscribed four
times, demonstrating the confidence of investors in both the
bank and the country.
On February 12th, 2014, Moody’s raised BBVA Bancomer’s long
term foreign currency deposit rating from Baa1 to A3 with stable
outlook and changed to positive the outlook for its financial
strength. The above is partly a consequence of the rating
upgrade of Mexico to A3.
As part of its 2013-2016 Investment Plan, BBVA in Mexico aims
to give quicker and more secure access to financial services
through digital channels. This has been reflected in the fact that
pre-approved consumer loans are available through channels
such as ATMs, among others. A new image for the website www.
bancomer.com has also been launched, incorporating significant
improvements to make customer transactions quicker and
easier and to increase their security.
With respect to awards and prizes, BBVA Bancomer has been
recognized as “Best Bank in Mexico” by the magazine Global
Finance for its profitability, good service, innovative products and
the achievement of the best results in 2013. The publication has also
highlighted the good solvency level and ample liquidity position,
which will enable BBVA Bancomer to support future growth.
Lastly, the following initiatives should be mentioned with respect
to corporate responsibility, in products with a high social
impact, BBVA Bancomer has been recognized by the
Inter-American Development Bank (IDB) with the “Beyond
Banking 2013” award in the Responsible/Impact Investment
category for its community involvement carried out through the
“B+Educa” fund. The shareholders in this Mexican fund contribute
25% of returns obtained directly to the integration scholarship
program “Por los que se quedan” (For those left behind). Thus,
the BBVA Bancomer Foundation received 81 million Mexican
pesos (€4.8m) in 2013 from 28,202 shareholders in this fund for
scholarships granted to young children of emigrants who are
studying the three years of junior high school.
Activity
In an environment of incipient acceleration of economic growth
in Mexico, loans under management grow 10.3% year-on-year,
supported by the good performance of consumer finance and
commercial loans.
The wholesale portfolio has shown the greatest strength, with
an increase over the same time horizon of 14.6% thanks to the
positive performance of loans to SMEs, which has maintained
double-digit year-on-year increases for the last 24 months (up
23.8% as of 31-Mar-2014). Corporate loans also performed well
and increased their year-on-year growth rate to 20.1%.
The retail portfolio, which includes consumer finance, credit
cards, residential mortgages and small businesses loans, has
increased by 7.0% since the close of the first quarter of 2013. The
most notable rise was in small businesses (up 24.3%), a segment
that has increased its average loan value per customer by over
50% in the last 12 months, followed by consumer finance (up
18.1%), which was boosted by the pre-approved loan campaign.
Bank credit cards have grown by 5.9%, very much in line with
the trend for a slowdown in the market, while the Finanzia (own
brand) credit card has begun to record lower balances as a
result of the conclusion in November 2013 of the commercial
financing agreement with Wal-Mart.
Risk indicators show a reduction in the NPA ratio (23 basis
points over the quarter) and a rise of the coverage ratio (3.4
percentage points in the same time frame). Proactive risk
management has enabled BBVA to stand out from its main
competitors in Mexico in terms of the non-performing portfolio
and loan-loss provisions (measured using local criteria).
In customer funds, the focus has remained on attracting
lower-cost deposits, which increased year-on-year by 14.8%. Overall,
the relative weight of these less expensive forms is now 80% of
total customer funds, ensuring an increasingly profitable mix.
In the insurance business, the figures for written premiums in the
first three months of the year were good, with growth of 25.5% in
the amount on the first quarter of 2013, mainly due to the good
performance of the “Inversión Libre Patrimonial” product.
Earnings
In the first quarter, Mexico posted a net attributable profit of
€453m, equivalent to year-on-year growth of 14.7%, the highest
in the last three years, with outstanding generation of recurring
revenue.
Net interest income has shown very strong performance. It
increased by 17.1% over the last 12 months, reflecting the good
performance of lending activity in recent quarters. This trend has
meant that BBVA has maintained its position in Mexico as one
of the most profitable banks in terms of net interest income over
ATA, with a ratio of 5.7% at the close of March 2014 (compared
with 5.1% in the sector under local criteria, according to the
latest available information as of February from the “Comisión
Nacional Bancaria y de Valores –CNBV–”).
36 Business areas
South America
Highlights in the first quarter of 2014
• Financial statements impacted by the depreciation of the Argentinean peso and the application of the exchange rate resulting from SICAD I in Venezuela.
• Sound growth rates of activity.
• Good risk indicators.
• Recurring revenue remains strong.
• BBVA “Best Bank in Peru, Venezuela and Uruguay” according to Global Finance.
524520
612
722666666666666
211 195242
277244244244244
0
100
200
300
400
500
600
700
800
Operating income(Million euros at constant exchange rates)
Net attributable profit(Million euros at constant exchange rates)
(1) At current exchange rates: —12.6%. (1) At current exchange rates: —18.5%.
524 520
612
722666
1Q 2Q 3Q 4Q
+27.1% (1)
2013 20141Q
211 195242
277244
1Q 2Q 3Q 4Q
+16.0% (1)
2013 20141Q
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Net interest income/ATA(Percentage. Constant exchange rates)
1Q 2Q 1Q2013 2014
5,065,35
5,68
6,05
5,42
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37South America
Highlights
The financial statements in the quarter have
been influenced by the depreciation of the
Argentinean peso and the use in Venezuela
of the exchange rate resulting from the
currency purchase-sale system called SICAD
I, which complements the official market.
According to the Exchange Agreement No.
25, this system is applicable to international
investments.
Business activity continued its positive trend
of previous quarters in both lending and
customer funds, which exceeded the rates of
growth of previous quarters.
In earnings, buoyant activity was reflected
in the progress and strength of recurring
revenue, which offset the effect of increased
operating expenses resulting from the
expansion plans and high inflation rates in
some countries in the region, as well as
loan-loss provisions, which increased in line
with lending.
Macro and industry trends
In the macroeconomic environment the
Andean countries continue to deliver solid
growth in activity levels, despite the less
favorable external environment and lower
commodity prices.
In some economies the capital outflows seen
at the end of 2013 are beginning to reverse
in the wake of the announcement of the
withdrawal of economic stimuli by the Fed.
The move is providing support to exchange
rates against the dollar, following earlier
depreciation. Outstanding in the quarter are
the application for international investment of
the exchange rate resulting from the currency
purchase-sale system called SICAD I, which
complements the official market in Venezuela,
and the depreciation of the Argentinean
peso. As a result, the impact of currencies
on the Group’s financial statements has been
negative, both in the last 12 months and
over the quarter. Unless otherwise indicated,
the rates of change below refer to constant
exchange rates.
The region’s financial system remains
sound, with good levels of capitalization,
robust profitability and NPA ratios in check.
Credit continues at high rates (double-digit),
although with signs of moderation in some
countries. Deposits are also maintaining high
rates of growth.
Balance sheet 31-03-14 ∆% ∆% (1) 31-03-13
Cash and balances with central banks 11,076 (8.7) 25.9 12,135
Financial assets 9,292 (15.3) 10.7 10,965
Loans and receivables 47,225 (3.4) 27.1 48,872
Loans and advances to customers 42,700 (3.5) 25.9 44,256
Loans and advances to credit institutions and other 4,525 (2.0) 39.7 4,616
Tangible assets 795 (1.3) 35.6 805
Other assets 1,620 0.4 32.6 1,614
Total assets/liabilities and equity 70,009 (5.9) 24.7 74,391
Deposits from central banks and credit institutions 4,417 (26.0) (9.7) 5,965
Deposits from customers 48,058 (4.8) 29.0 50,506
Debt certificates 3,783 3.4 25.1 3,660
Subordinated liabilities 1,243 (11.4) 7.2 1,402
Financial liabilities held for trading 1,358 50.0 86.3 906
Other liabilities 8,242 (6.5) 22.5 8,812
Economic capital allocated 2,907 (7.4) 23.1 3,140
Relevant business indicators 31-03-14 31-12-13 31-03-13
Loans under management (1) 43,334 41,965 34,598
Customer deposits under management (1-2) 52,128 49,049 40,452
Mutual funds 3,220 2,952 3,807
Pension funds 3,656 3,600 3,117
Efficiency ratio (%) 42.6 42.5 42.6
NPA ratio (%) 2.2 2.1 2.2
NPA coverage ratio (%) 136 141 143
Risk premium (%) 1.23 1.50 1.33
(1) Figures at constant exchange rates. (2) Excluding repos and including specific marketable debt securities.
Financial statements and relevant business indicators (Million euros and percentage)
Income statement 1Q14 ∆% ∆% (2) 1Q13
Net interest income 934 (9.3) 34.1 1,030
Net fees and commissions 173 (14.9) 21.3 203
Net trading income 152 (18.7) 26.4 187
Other income/expenses (99) 5.3 205.8 (94)
Gross income 1,160 (12.6) 25.2 1,327
Operating expenses (494) (12.5) 22.6 (565)
Personnel expenses (245) (14.2) 18.4 (286)
General and administrative expenses (215) (10.6) 26.4 (240)
Depreciation and amortization (34) (11.8) 30.7 (39)
Operating income 666 (12.6) 27.1 762
Impairment on financial assets (net) (137) (9.3) 20.7 (151)
Provisions (net) and other gains (losses) (27) (1.2) 174.8 (27)
Income before tax 503 (14.0) 25.4 585
Income tax (142) 2.4 44.8 (139)
Net income 361 (19.0) 19.1 446
Non-controlling interests (117) (20.1) 26.1 (146)
Net attributable profit 244 (18.5) 16.0 300
38 Business areas
in market share). In deposits (up 18.1% year-on-year) there
was a particularly outstanding increase in the rate of
growth of lower-cost transactional deposits (31.3%).
– Venezuela: excellent performance of lending and
deposits, with year-on-year growth of 73.8% and 79.2%,
respectively. Although this strength is recorded across
all the business lines, the commercial portfolio has been
outstanding (up 40.5%), with a gain in market share of 70
basis points, as have current and savings accounts (up
98.2% and a gain of 9 basis points in market share) and
in the quarter time deposits (up 61.7% since December
2013).
Earnings
The application of SICAD I in Venezuela and the depreciation of
the Argentinean peso in January 2014 had an impact on each
of the items on the area’s income statement; however, they
were mitigated from the point of view of net attributable profit
thanks to the Group’s active management of hedging. The most
significant aspects of earnings for the quarter are as follows:
• Good performance of gross income, which rose in
year-on-year terms by 25.2% thanks to excellent recurring
revenue, due to the strength of activity mentioned above
and good price management.
• The high inflation in some countries in the area and the
technological expansion and transformation plans that are
being carried out in the region continue to explain much of
the year-on-year increase (up 22.6%) in operating expenses.
• Impairment losses on financial assets grew at a similar rate
to lending, with the cumulative risk premium as of 31-Mar-2014
at 1.23% (1.50% in 2013).
• Overall, South America generated a net attributable profit
in the first quarter of 2014 of €244m, a year-on-year increase
of 16.0%.
• This can be broken down by country as follows:
– Argentina posted a net attributable profit of €43m,
underpinned by progress in revenue, which was
boosted by the revaluation of dollar positions due to
the aforementioned depreciation of the Argentinean
peso, offsetting the increase in expenses and loan-loss
provisions.
– Chile, thanks to good inflation figures, increased its net
attributable profit by 96.4% to €36m, leveraged on the
increase in net interest income and NTI.
– In Colombia, the strength of net interest income, thanks
to good business activity, explains the year-on-year rise
of 16.2% in gross income. Net attributable profit reached
€61m, a decline of 1.3% owing to the increase in expenses
and loan-loss provisions.
Activity
The general tone of the area is still one of buoyant activity,
both in lending and customer funds, in all the countries where
BBVA operates:
• The annual growth of the balance of the loans under
management, has accelerated to 25.3%. There has been
a significant rise in the individual portfolios thanks to an
increase in credit cards (up 43.7% year-on-year), consumer
finance (up 25.2%) and, to a lesser extent, mortgages (up
18.4%). Lending to small businesses has also performed very
well (up 39.0%).
• Good risk indicators. Asset quality in the area continues
to be high, thanks to the strict risk admission policies and
active management of recoveries.
• Customer deposits under management continue to rise
at a fast pace (up 28.9% year-on-year), with lower-cost
transactional deposits (current and savings accounts) being
the main drivers of this growth. These funds have posted
a year-on-year gain in market share of 34 basis points,
according to the latest available information as of February
2014 (all the figures below on market share refer to February
2014, the latest available data).
• There has also been growth in the balance of mutual fund
assets under management by banks in the region, with a
rise in total customer funds of 26.9% on 31-Mar-2013.
• By countries, the highlights of banking activity are as
follows:
– Argentina: excellent performance of lending, which
increased by 24.7% on the figure for March 2013. Worth
noting was the increase in consumer finance and credit
cards (up 39.5%), with a gain in market share of 17 basis
points over the last 12 months. Deposits increased 28.1%
year-on-year, with good performance in time deposits,
where there was a gain of 34 basis points in market share
since February 2013.
– In Chile lending increased year-on-year by 12.2% and
deposits by 16.7%. The mortgage portfolio performed
particularly well (up 14.9%, with a rise of 24 basis points
compared with data as of 28-Feb-2013).
– In Colombia, there was sustained growth in lending (up
20.0%) and deposits (15.0%), above that registered by
the system in both cases, and with year-on-year gains
in market share of 62 basis points in lending and 41 in
deposits. This strong performance has been reflected in
practically all the business lines in customer funds and
lending.
– In Peru lending has also grown above the average for
the system (up 21.6% year-on-year and 46 basis points of
gain in market share), thanks to the notable increase in
corporate lending (up 31.5% and a rise of 100 basis points
39South America
– In Peru, increased recurring revenue has
partially offset the rise in expenses and
loan-loss provisions (the latter in line
with increased activity) and led to a net
attributable profit of €36m (down 2.9%
year-on-year).
– Venezuela has posted a higher result
than in the same quarter last year
(€57m, up 30.0% year-on-year), as
revenue continued to grow strongly and
offset increased expenses and loan-loss
provisions.
Main highlights
With respect to corporate responsibility,
the following have contributed to the
development of financial inclusion:
• BBVA Continental in Peru has launched
“Efectivo Móvil”, which enables people to
send cash from a cell phone and withdraw
it from any of the bank’s ATMs without the
need to be a customer or use a card. This is
a technological innovation that will benefit
over 4 million self-employed people.
• In Colombia the “Tarjeta de Crédito
Congelada BBVA” has been launched. It is
an initiative that provides a special credit
card to people on low income.
With respect to awards and recognition
received in the quarter, the magazine Global
Finance has named BBVA “Best Bank” in
Peru, Venezuela and Uruguay at the 21st
Best Banks in Latin America awards, due to
their profitability, good service, innovative
products and achieving the best earnings
figures in 2013. BBVA Continental (Peru) and
BBVA Provincial (Venezuela) have obtained
this award for the 11th and 18th year in a row,
respectively, for attributes such as efficiency
and profitability.
The initiatives aimed at boosting digital
channels include:
• BBVA has extended the “e-Oferta” tool
created in Spain to Peru, Chile, Colombia
and Argentina. This digital solution brings
the range of BBVA products and services
to small companies and institutions.
• BBVA Chile has launched “BBVA Link”, an
application that allows users to send, request
and receive money directly from Facebook
in only three steps, with complete security
and without maintenance fees. It is the first
Facebook bank account in Latin America.
South America. Data per country(Million euros)
Operating income Net attributable profit
Country 1Q14 ∆% ∆% at constant exchange rates 1Q13 1Q14 ∆%
∆% at constant exchange rates 1Q13
Argentina 99 (4.9) 49.5 104 43 (4.5) 50.1 45
Chile 85 18.5 43.5 72 36 62.2 96.4 22
Colombia 131 1.7 18.2 128 61 (15.1) (1.3) 72
Peru 144 (9.2) 2.7 159 36 (14.2) (2.9) 41
Venezuela 189 (30.8) 52.5 273 57 (41.0) 30.0 96
Other countries (1) 18 (28.9) (22.6) 26 13 (46.7) (42.4) 24
Total 666 (12.6) 27.1 762 244 (18.5) 16.0 300
(1) Paraguay, Uruguay and Bolivia. Additionally, it includes eliminations and other charges.
40 Business areas
Corporate Center
Balance sheet 31-03-14 ∆% 31-03-13
Cash and balances with central banks 21 (78.1) 97
Financial assets 2,824 7.9 2,617
Loans and receivables 81 (97.0) 2,691
Loans and advances to customers 81 (96.7) 2,478
Loans and advances to credit institutions and other - - 212
Inter-area positions - - -
Tangible assets 2,085 3.2 2,021
Other assets 16,494 (18.2) 20,158
Total assets/liabilities and equity 21,505 (22.0) 27,584
Deposits from central banks and credit institutions - - 1,568
Deposits from customers - - (368)
Debt certificates 6,049 (37.6) 9,692
Subordinated liabilities 2,965 n.m. 490
Inter-area positions (13,502) 104.6 (6,597)
Financial liabilities held for trading - - -
Other liabilities 4,587 (47.7) 8,767
Shareholders' funds 46,194 6.2 43,481
Economic capital allocated (24,788) (15.8) (29,449)
The Corporate Center results in the first
quarter of 2014 were a negative €439m,
compared with the positive figure of €550m
in the same period of 2013. These figures are
heavily conditioned by:
• The lack of results from corporate
operations, while in the first quarter
of 2013 there were earnings from the
Group’s pension business in Latin America,
including the capital gains from the sale
of the Afore Bancomer in Mexico, and
the equity-accounted income (excluding
dividends) of BBVA’s stake in CNCB.
• The 2013 figures also include the results
of BBVA Panama until its sale, which was
completed in December 2013.
• In addition, in the first quarter of 2013 NTI
was very positive as a result, in part, of the
sale of some Unnim positions.
Asset/Liability Management
The Assets and Liabilities Management
unit is responsible for managing structural
interest-rate and foreign-exchange positions,
the Group’s overall liquidity as well as
shareholders’ funds.
Earnings from the management of liquidity
and the structural interest-rate positions
in each balance sheet are registered in the
corresponding areas.
With respect to the management of
exchange-rate risk of the BBVA Group’s
corporate investments, the results are
included in the Corporate Center and
explained in detail in the Risk Management
section, under the sub-section “Structural
Risks”.
The Bank’s capital management has a
twofold aim: to maintain levels of capitalization
appropriate to the business targets in all
the countries in which it operates; and to
maximize return on shareholders’ funds
through the efficient allocation of capital
to the various units, good management of
the balance sheet and proportionate use of
the various instruments that comprise the
Financial statements (Million euros)
Income statement 1Q4 ∆% 1Q13
Net interest income (177) 5.2 (169)
Gross income (248) n.m. (48)
Operating expenses (278) (2.5) (285)
Operating income (526) 57.9 (333)
Impairment on financial assets (net), provisions (net) and other gains (losses) (68) 73.4 (39)
Income before tax (593) 59.6 (372)
Income tax 154 57.6 97
Net income from ongoing operations (440) 60.1 (275)
Results from corporate operations - - 875
Net income (440) n.m. 600
Non-controlling interests 1 n.m. (50)
Net attributable profit (439) n.m. 550
Net attributable profit (excluding results from corporate operations) (439) 35.4 (324)
41Corporate Center
Group’s equity: common stock, preferred
securities, conditional convertible bonds and
subordinated debt.
The highlights of the first quarter of 2014
in the Group’s capital management were as
follows:
• The entry into force of Royal Decree
14/2013 of 29 November and Bank of Spain
Circular 2/2014, which aim to adapt the
European solvency regulations CRD IV
(CRR 575/2013 and CRD 2013/36, both of
26 June) to Spanish law. These regulations
have a limited impact on the Group’s
capital adequacy ratios as can be seen in
the Capital base section.
• Two debt issues have strengthened the
Group’s capital base and helped optimize
its structure under CRD IV:
1. The first was the second issue of
contingent convertible securities,
eligible as additional Tier I under the
new regulations in force, for €1.5 billion
and a coupon of 7%. Demand for the
issue was over €14 billion, reflecting
the high investor appetite for these
instruments issued by BBVA.
2. The second was issued early in April. It
was a subordinated debt issue for €1.5
billion at 3.5%, and had a demand of
over €7 billion, eligible as Tier II under
the new solvency requirements.
• The Annual General Meeting held on
March 14, 2014 approved the continuation
of the “dividend option” shareholder
remuneration program, under which
shareholders can continue to obtain a
broader range of remuneration alternatives
for their shares.
All these measures mean that the current
levels of the Group’s capitalization easily
meet the legal limits, and enable appropriate
compliance with all the capital targets, as has
been reflected in the Capital Base chapter.
42 Business areas
Other information: Corporate & Investment Banking
Highlights in the first quarter of 2014
• Shift in lending activity trend.
• New improvement of the commercial and liquidity gap for the banking business.
• Strength and quality of gross income.
• Cost control.
• Reduction in loan-loss provisions.
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Gross income/ATA(Percentage. Constant exchange rates)
1Q 2Q 1Q2013 2014
1,681,54 1,47 1,50
1,76
0
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2
3
4
1.68
3Q
1.50
4Q
1.471.76
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4.3%
Loans under management
18.5%
Customer depositsunder management
Business activity(Year-on-year change at constant exchange rates. Data as of 31-03-2014)
43Other information: Corporate & Investment Banking
Highlights
In activity, CIB continues to focus on its
customer-centric strategy, boosting
cross-selling and prioritizing profitability over
volume. One of the highlights in the quarter
was the turnaround in lending activity and
another improvement in the commercial and
liquidity gap thanks to the positive trend in
customer deposits.
In earnings, gross income has maintained its
strength and quality, supported once more
by the positive performance in the Global
Lending, Global Transaction Banking and
Global Markets units, cost control and reduced
loan-loss provisions.
Macro and industry trends
The most important macroeconomic
and industry trends affecting the Group’s
wholesale business in the quarter have been:
• A confirmation of the upward trend in
global economic growth.
• The global environment has been assisted
by the economic policies undertaken
in recent quarters, which have reduced
uncertainty and balanced risks.
• Exchange rates have had a negative
impact on the balance sheet, activity and
earnings of CIB. All the comments below
on rates of change will be expressed at a
constant exchange rate, unless expressly
stated otherwise.
Activity
• A change in the trend in loans under
management by CIB, which have grown
by 5.4% over the quarter (up 2.0% not
including Global Markets). This has
moderated the negative year-on-year
change in previous periods to –4.3% (up
1.2% excluding the balances of Global
Markets).
• Stability in the asset quality indicators,
with NPA and coverage rates remaining at
practically the same levels as at the close
of 2013.
• Good performance by customer deposits
under management, with growth of 18.5%
over the last year. The reduction over the
quarter can be explained by the balances
Balance sheet 31-03-14 ∆% ∆% (1) 31-03-13
Cash and balances with central banks 2,836 (52.8) (47.7) 6,004
Financial assets 84,632 5.4 8.6 80,331
Loans and receivables 65,162 (9.8) (5.7) 72,254
Loans and advances to customers 47,827 (9.9) (4.9) 53,056
Loans and advances to credit institutions and other 17,335 (9.7) (8.0) 19,198
Inter-area positions - - - -
Tangible assets 25 (35.7) (32.3) 39
Other assets 3,375 27.5 37.1 2,646
Total assets/liabilities and equity 156,030 (3.3) 0.7 161,274
Deposits from central banks and credit institutions 53,983 2.9 5.0 52,447
Deposits from customers 38,777 6.0 18.5 36,589
Debt certificates (102) (23.9) (23.9) (134)
Subordinated liabilities 1,298 (3.6) 3.0 1,347
Inter-area positions 4,661 (33.1) (29.7) 6,964
Financial liabilities held for trading 49,374 (9.9) (9.2) 54,812
Other liabilities 3,862 (25.3) (21.3) 5,174
Economic capital allocated 4,177 2.5 8.8 4,075
Relevant business indicators 31-03-14 31-12-13 31-03-13
Loans under management (1) 47,604 45,150 49,752
Customer deposits under management (1-2) 29,396 31,125 24,812
Mutual funds 955 713 1,048
Pension funds - - -
Efficiency ratio (%) 26.9 30.5 28.7
NPA ratio (%) 1.6 1.6 1.5
NPA coverage ratio (%) 83 81 66
Risk premium (%) 0.29 0.19 0.48
(1) Figures at constant exchange rates. (2) Including area’s repos in Mexico.
Financial statements and relevant business indicators (Million euros and percentage)
Income statement 1Q14 ∆% ∆% (1) 1Q13
Net interest income 369 2.5 14.5 360
Net fees and commissions 179 (7.6) (1.7) 194
Net trading income 258 2.6 24.3 251
Other income/expenses (6) (65.4) (35.3) (16)
Gross income 800 1.5 13.8 788
Operating expenses (215) (4.8) 1.6 (226)
Personnel expenses (118) (5.6) (1.8) (125)
General and administrative expenses (93) (4.0) 6.0 (97)
Depreciation and amortization (5) 0.0 6.1 (5)
Operating income 584 4.1 19.1 562
Impairment on financial assets (net) (44) (29.6) (29.8) (62)
Provisions (net) and other gains (losses) 0 n.m. n.m. (9)
Income before tax 541 10.2 28.3 491
Income tax (165) 11.1 29.7 (148)
Net income 377 9.9 27.7 343
Non-controlling interests (35) (17.5) 28.6 (43)
Net attributable profit 341 13.8 27.6 300
44 Business areas
registered in the Global Markets unit.
Excluding these, growth over the last three
months was 5.3% (up 32.7% year-on-year).
• As a result, the commercial and liquidity
gap of CIB’s banking business continues to
improve.
Earnings
CIB generated a net attributable profit of
€341m in the first quarter of 2014, a
year-on-year growth of 27.6%, supported by:
• Strong gross income (up 13.8%
year-on-year) as a result of the BBVA CIB
strategy to prioritize profitability over
volume, its customer-centric business
model and the boost to cross-selling.
• Operating expenses have been kept in
check and barely increased by 1.6% over
the last 12 months, falling 4.4% on the figure
for the last quarter of 2013. This effort at
moderation is even more relevant taking
into account that the Bank continues
to invest in technology and innovation,
and that it operates in both mature and
emerging markets, with high inflation rates.
The fact that revenue has grown more than
expenses has led to a clear improvement
in CIB’s efficiency ratio, which closed the
first quarter of 2014 at 26.9% (28.7% a
year earlier) and with operating income
growing at 19.1% year-on-year.
• Lastly, impairment losses on financial
assets declined by 29.8% compared with
the same period in 2013.
Main highlights
The Mergers & Acquisitions unit continues to
be the Spanish leader in financial advice for
M&A deals and is also performing well in Latin
America. Over the quarter, the most important
deals were the following:
• Spain: advice to Saba Infraestructuras on
the bidding process for 41 ADIF parking
garages and the acquisition of Unipapel by
Springwater Capital.
• Latin America: advice in Mexico to Banco
del Bajío y Afirme on the transfer of its
Afore Afirme-Bajío portfolio to Profuturo.
Advice in Peru to Enagas on the acquisition
of a 20% stake in TgP. This is the second
most important investment in history
carried out by a Spanish company in Peru.
With respect to Equity Capital Markets,
the primary equity market has reactivated
in developed countries in terms of volume
of issuance. BBVA has participated in the
following operations in the quarter:
• Spain: it has acted as joint bookrunner in
the ACS bond convertible into Iberdrola
shares and as co-lead manager in Acciona’s
convertible bond issue. BBVA has been the
agent bank in Repsol’s scrip dividend.
• Portugal: BBVA has acted as co-lead
manager in the IPO of Espirito Santo
Saude.
• The United States: BBVA has participated as
co-manager in the IPO of EP Energy.
In Corporate Lending, BBVA has continued
to head the rankings of syndicated loans in
Spain and collaborating in different operations
with various top tier companies in the rest
of geographical regions were the Group is
present.
The highlights in Project Finance transactions
in the quarter have been:
• Spain and Portugal: renewal of the debt
of Redexis (formerly Endesa Gas), with
a hybrid scheme of banking loans and
financing via bonds.
• Latin America: headed up the El Retiro
wind farm, Veracruz Shopping Mall projects
and the bond for the Itxapan La Sal-
Tenango highway, all of them in Mexico.
• The United States: agreement with Sempra
on the Copper Mountain Solar 3 project, in
which BBVA has acted as MLA.
The highlights in the quarter in the Global
Transaction Banking unit are summed up
below:
• With respect to new products and services,
the following highlights are related to
online banking and mobile banking: SWIFT
messaging in Venezuela, integration of
DVP (delivery versus payments) in Chile,
International ACH Transaction (the new
Securities and Exchange Commission
standard in the United States for transfers)
45Other information: Corporate & Investment Banking
and Lockbox (integrated invoice collection)
in the United States and the single SIT
format (integrated treasury system) in
Mexico.
• Awards received: “Deals of the Year” from
the magazine Trade Finance and “Best
Deal” from Global Trade Review magazine.
The highlights in the quarter in Global
Markets were:
• Strength and solidity in gross income,
which totaled €406m (up 16.3% year-on-
year), thanks to the excellent performance
of customer revenue. By geographical
areas, the good performance of revenue in
Spain (up 26.0% year-on-year, the United
States (up 58.8%) and South America (up
41.7%).
• Very favorable behavior of business with
the institutional segment, firmly based on
the interest rate and equity businesses in
Europe.
• Leadership in equity brokerage activity on
the Spanish Stock Exchange Market, with
a market share of 9% in the first quarter of
2014.
• BBVA has acted as bookrunner in the
biggest issue ever in history by the
Spanish Treasury, at a nominal amount of
€10 billion. In addition, BBVA has led debt
issues by Telefónica, Enagás, ICO and the
Autonomous Region of Madrid.
• Finally, BBVA has been recognized as “Best
Investment Bank in Spain” by the specialist
magazine Global Finance.
46 Annex
Interest rates(Quarterly averages)
2014 2013
1Q 4Q 3Q 2Q 1Q
Official ECB rate 0.25 0.25 0.50 0.50 0.75
Euribor 3 months 0.30 0.24 0.22 0.21 0.21
Euribor 1 year 0.56 0.53 0.54 0.51 0.57
USA Federal rates 0.25 0.25 0.25 0.25 0.25
TIIE (Mexico) 3.79 3.85 4.24 4.32 4.72
Exchange rates(Expressed in currency/euro)
Year-end exchange rates Average exchange rates
31-03-14∆% on
31-12-13∆% on
31-03-13 1Q14∆% on
1Q13
Mexican peso 18.0148 0.3 (12.2) 18.1297 (7.9)
U.S. dollar 1.3788 0.0 (7.1) 1.3696 (3.6)
Argentinean peso 11.0370 (18.6) (40.6) 10.3999 (36.4)
Chilean peso 759.30 (4.8) (20.3) 755.29 (17.4)
Colombian peso 2,710.03 (1.9) (13.4) 2,747.25 (13.9)
Peruvian new sol 3.8717 (0.5) (14.4) 3.8465 (11.7)
Venezuelan bolivar fuerte 14.7532 (41.2) (45.4) 15.4696 (54.6)
Turkish lira 2.9693 (0.3) (21.8) 3.0372 (22.4)
Chinese yuan 8.5754 (2.6) (7.2) 8.3576 (1.6)
Annex
Recurrent economic profit by business area (January-March 2014. Million euros)
Adjusted net attributable profit Economic profit (EP)
Spain 405 197
Real-estate activity in Spain 16 (6)
The United States 71 18
Eurasia 88 (16)
Mexico 500 370
South America 173 64
Corporate Center (309) (319)
BBVA Group 943 308
47Conciliation of the BBVA Group’s financial statements
Conciliation of the BBVA Group’s financial statements
Below is presented the conciliation of the Group’s financial
statements with the Garanti Group using the equity method
versus consolidation in proportion to the percentage of the
BBVA Group’s stake in the Turkish entity. In terms of reporting
to the market, this consolidation method is deemed better for
evaluating the nature and financial effects of the Garanti Group’s
business activities, consistent with the information from previous
periods, and more coherent in its effects on capital adequacy.
Moreover, in 2013 the corporate operations heading includes
the results from the Group’s pension business in Latin America
and the capital gains from the sale of the various companies, the
capital gain from the disposal of BBVA Panama, the capital gain
generated by the reinsurance operation on the individual life
and accident insurance portfolio in Spain and the effects of the
conclusion of the agreement with the CITIC group.
Consolidated income statement BBVA Group (Million euros)
Garanti Group consolidated in proportion to the percentage of the Group’s stake and with the heading “Results from corporate operations”
Garanti Group consolidated using the equity method
1Q14 1Q13 1Q14 1Q13
Net interest income 3,391 3,623 3,244 3,424
Net fees and commissions 985 1,052 943 1,003
Net trading income 751 719 733 681
Dividend income 29 19 29 19
Income by the equity method (14) (1) 55 157
Other operating income and expenses (90) 7 (92) -
Gross income 5,051 5,419 4,912 5,284
Operating expenses (2,613) (2,758) (2,252) (2,391)
Personnel expenses (1,375) (1,458) (1,329) (1,406)
General and administrative expenses (959) (1,025) (923) (985)
Depreciation and amortization (279) (276) (271) (265)
Operating income 2,438 2,661 2,389 2,628
Impairment on financial assets (net) (1,103) (1,376) (1,078) (1,472)
Provisions (net) (144) (167) (140) (147)
Other gains (losses) (173) (287) (174) 473
Income before tax 1,017 831 998 1,482
Income tax (273) (205) (254) (364)
Net income from ongoing operations 744 626 744 1,118
Net income from discontinued operations - - - 823
Results from corporate operations - 1,315 - -
Net income 744 1,941 744 1,941
Non-controlling interests (120) (206) (120) (207)
Net attributable profit 624 1,734 624 1,734
48 Annex
Consolidated balance sheet BBVA Group (Million euros)
Garanti Group consolidated in proportion to the percentage of
the Group’s stakeGaranti Group consolidated using
the equity method
31-03-14 31-03-14
Cash and balances with central banks 27,546 25,522
Financial assets held for trading 76,433 76,236
Other financial assets designated at fair value 3,385 3,040
Available-for-sale financial assets 88,236 84,931
Loans and receivables 360,938 348,190
Loans and advances to credit institutions 21,441 20,179
Loans and advances to customers 334,698 323,363
Debt securities 4,799 4,648
Held-to-maturity investments - -
Investments in entities accounted for using the equity method 1,319 4,623
Tangible assets 7,474 7,298
Intangible assets 8,139 6,729
Other assets 25,666 25,411
Total assets 599,135 581,980
Financial liabilities held for trading 48,976 48,810
Other financial liabilities at fair value 3,040 2,525
Financial liabilities at amortized cost 476,656 460,536
Deposits from central banks and credit institutions 84,461 80,054
Deposits from customers 309,817 299,685
Debt certificates 62,892 61,951
Subordinated liabilities 12,123 12,100
Other financial liabilities 7,363 6,746
Liabilities under insurance contracts 10,102 10,092
Other liabilities 16,306 15,961
Total liabilities 555,079 537,925
Non-controlling interests 1,863 1,863
Valuation adjustments (3,636) (3,637)
Shareholders' funds 45,830 45,829
Total equity 44,056 44,056
Total equity and liabilities 599,135 581,980
Memorandum item:
Contingent liabilities 34,878 31,897
BBVA INVESTOR RELATIONS
Headquarters
Paseo de la Castellana, 81 – 17th floor
28046 Madrid
SPAIN
Telephone: +34 91 374 65 26
E-mail: [email protected]
New York Office
1345 Avenue of the Americas, 44th floor
10105 New York, NY
Telephones: +1 212 728 24 16 / +1 212 728 16 60
London Office
One Canada Square, 44th floor
Canary Wharf, London E14 5AA
Telephone: +44 207 648 7671
Hong Kong Office
Level 95, International Commerce Centre
One Austin Road West, Kowloon,
Hong Kong
Telephone: +852 2582 3229
More information at:
http://shareholdersandinvestors.bbva.com
1Q14
1Q14